Execution Rule Overview

Execution Rules are the core engine for the management of flow through Compass that dictate how trades will be executed (internalised, brokered, or cancelled/rejected) based on defined criteria and trade checks.

This allows you fine grained control over the management of various sets of flow and trading behaviours.

Execution Rules are defined in Compass' Distribution screen:

An Execution rule will be applied to flow passed through the channel if the criteria defined matches. Criteria can be defined by a number of parameters, these may be dynamic triggers from the automated classifier, be specific to particular counterparties or groups or can be applied more generally.

Compass runs through each profile from top to bottom checking if any of the information contained within the order matches the criteria.

Once matching criteria is identified, the rule will apply the specified Execution Style in accordance with the limiting parameters.

The process is stopped after the first matching criteria.

1. Criteria
2. Internalisation Logic
1. Execution Style
2. Net Vol. Limit Breach
3. Last Look
4. Acceptance Criteria
1. Price Checks
2. Mid Distance Checks
3. Indicative Mid
3. Slippage and Price Controls
1. Price Improvement
2. Published Price Deviation
3. Top up
4. Pool Override
4. Fee Discounts
5. Tuning Execution Rules
1. Tailoring the quality of execution to the quality of client
2. Tuning rules for different executions
6. Analysing rule performance
1. Yield Profiles

Criteria

Execution Rule Criteria defines the information a trade must contain to be matched to the rule. They can be a combination of:

• Risk Increasing (true/false)
• Signal Alias (rule is used when signal is active)
• Dynamic Counterparty
• Instrument
• Instrument List
• Asset
• Trading Account
• Timezone
• Counterparty
• Distribution Channel
• Base notional

Internalisation Logic

Execution Style

Determines how the flow should be executed (internalised, brokered, cancelled, filled)

Once the Execution Style has been defined, the UI provides a number of options to define under what circumstances a matching trade is to be executed in that way. This allows you to be more aggressive or permissive with different types of flow.

Net Vol. Limit Breach

The net volume limit profile (set to true/false) defines if a trade should be automatically cancelled or whether it should still be subject to the checks for potential internalisation when the Net Limit Volume has been continuously breached.

Execution Rules - Net Vol. Limit Breach

Last Look

This is the maximum amount of time (defined in ms) a trade can be held before making an execution decision. Price checks are done at the beginning of the last look period and at the end. If the checks are failed at either time, the trade is rejected/cancelled/brokered immediately.

Trades are executed using the smaller last look value unless the net volume limiting profile is surpassed, in which case it will use the longer last look period.

Execution Rules - Last Look

Acceptance Criteria Checks

There are 2 different checks that can be applied to a trade to determine whether it is accepted for internalisation, sent for brokering or cancelled:

• Execution Rules - Price Check
• Execution Rules - Mid Distance Check

These define a threshold from Compass' perspective for a trade to fall within in order to pass the checks.

Indicative Mid Allowed

This determines whether an indicative mid should be allowed when performing checks. If the mid source market is the same as the internalisation market and indicative mid is not allowed, then if the internalisation market goes indicative and the continuity pool price is being published instead, no executions will occur as the mid source market (internalisation market) is indicative.

Slippage and Price Controls

Price Improvement

Allows price improvement to the fill a client receives compared to the published price, when switched off, orders will never be filled at a better rate than the inception price.

If on, this allows trades to be improved for clients up until the limit cap or until price checks are breached.

The price improvement cap is in basis points (0.0001). The cap would be:

• Bid: published price + (price improvement cap x published mid)
• Offer: published price - (price improvement cap x published mid)

Published Price deviation

This is a cap on negative slippage. It ensures that clients will never be filled at a price worse than the published price plus the configured limit. Market orders will be converted to limit orders in the case that this is applied.

The published price deviation is in basis points (0.0001). The cap would be:

• Bid: published price - (published price deviation x published mid)
• Offer: published price + (published price deviation x published mid)

Top-Up

A top up trade occurs where attempts to broker a full amount trade results in a partial fill and the house (Compass) steps in to cover the rest.

Allow Top Up - If allow top up is selected, the execution rule will allow top ups where the P&L conditions are met.

Min Top Up Trade P&L - This is the minimum P&L for the house in USD/million required for a top up deal to be provided.

Example:
A value of 20 would mean a 1m top up deal needs to have at least $20 edge in it.
Where this criteria is not met, the user will receive a full cancel and the house will wear the risk from the partial fill.

Pool Override

This is an override for the broker pool. The execution rule decides whether to internalise/broker/reject based on the broker pool configured in the channel but if this pool override is set and the order is to be brokered, it will be brokered to this pool instead. To disable this feature and use the broker pool in the distribution channel, leave this field blank.

Fee Discounts

Should the order get a fee discount for brokering or internalising? This is configured as a percentage where 0% means no discount and the full fee is payable, whereas 100% means full discount and no fee is payable. The fees being discounted are the markup fees configured in the distribution channels. This is only applied if it’s needed to get a fill.

Analysing rule performance

Execution rule performance can be reviewed in Echo Yield Profiles. By slicing and dicing flow in Echo using it's groupings and filters you are able to analyse the quality of flow captured by each execution rule.

Reviewing the type of flow through each execution rules allows you to make informed decisions on the parameters used in each execution rule.

See:

• Execution Rules - Tailoring the quality of execution to the quality of client
• Yield Profiles - Group By Execution Profile
• Yield Profiles - Group By Cancel Reason
• Yield Profiles - Filtering for Internalised vs Brokered trades