DMM in Eurex

liquidity peddler · Post by **liquidity peddler** » Tue Oct 04, 2011 4:46 am

I was just reading that the Eurex has introduced a DMM for the Euro Stoxx 50 contract (in addition to others): Circular 217/2011

http://www.eurexchange.com/download/documents/circulars/cf2172011e.pdf

The deal seems to be, you the DMM promise to make a market of at least 5 contracts on each side, no more than 10 points wide (!), 80 % of the time during the trading day on average each month. You also agree to police the abuse of the contract to get around the ban on shorting certain individual stocks.

In exchange, Eurex agrees to feature you on promotional material, invite you to seminars and grant you the title of official market maker. You can also be on the consultative board when we want to tweak the contract.

Now .... what is really going on here? I like free food at a seminar, but I'm not going to make a market just so I can get a cold platter now and then ${L_SMILIES_SMILE}$

FDAXHunter · Post by **FDAXHunter** » Tue Oct 04, 2011 7:21 am

Like you said, there's no point. I think the marketing trolls decided that they hadn't created enough initiatives this year, so out it went.

liquidity peddler · Post by **liquidity peddler** » Tue Oct 04, 2011 7:40 am

Thanks FDAX. So DMMs are quite toothless in the FESX then.

FDAXHunter · Post by **FDAXHunter** » Tue Oct 04, 2011 7:51 am

I don't think FESX needs market makers. It needs market takers.

liquidity peddler · Post by **liquidity peddler** » Tue Oct 04, 2011 8:06 am

Yes! It's nice and fat and slow. You get 10 visible levels and each level represents about 5bps of notional value, so that's 50bps of visibility on each side.

OTOH the HSI gives you 5 levels of visibility on each side of the book, which *add* up to about 3bps up and 3bps down. It's like driving down a road with dirty windscreen and only a single clean spot to peer through.

FDAXHunter · Post by **FDAXHunter** » Tue Oct 04, 2011 8:52 am

Just as an aside: you can currently get up to 20 levels of depth on Eurex (for the liquid futures). Check with your vendor.

derek · Post by **derek** » Tue Oct 04, 2011 10:35 pm

Maybe they should design their DMM programs and then hit the pub instead of doing it in reverse order.

liquidity peddler · Post by **liquidity peddler** » Thu Oct 06, 2011 4:03 am

Thanks FDAX - yes, that was what I meant.

On separate note, I would love to understand how some of these exchange committees decide on the tick sizes of the contracts. I know it is effectively a negotiation between constituents (brokers, locals [if any], the exchange, liquidity providers, etc), but some of the end results are just weird.

I find it hard to believe the HSI or Nifty can't be better designed - but I guess that only tells me that I am not the targeted end user!