Tailor-Made Combination 
01/09/2017 
 
Overview

The Tailor-Made Combination (TMC) Function is a new combination trade facility that enables market participants to create self-defined futures and options strategies^ through a single order. Like standard orders for options series and futures contracts, TMC orders are matched by HKATS, the trading system for HKEX's Derivatives Market, on a price/time priority basis.

^To be included in a TMC, a strategy must be on the Exchange's "List of Prescribed Strategies for Tailor-Made Combinations". 

Benefits of Tailor-Made Combination Function
Ease of Trading - users can create combinations with up to a maximum of 4 legs and place limit orders with the net prices of the combinations
Auto-Matching - orders for Tailor-Made Combinations will be ranked and matched by HKATS automatically according to price/time priority
Ability to Send Quote Requests - users can send quote requests for Tailor-Made Combinations to induce trading interests
An Efficient Combination Trade Facility - for options rollovers, options strategies and delta hedging
Applicable Products
Tailor-Made Combinations is applicable to the following markets:
Hang Seng Index Futures and Options
Mini-Hang Seng Index Futures and Options
Hang Seng China Enterprises Index Futures and Options
Mini-Hang Seng China Enterprises Index Futures and Options
Stock Options
Prescribed Strategies for Tailor-Made Combinations 

The creation of Tailor-Made Combination is limited to strategies prescribed by the Exchange.  All prescribed strategies must be created in the exact form as stated in the definitions, i.e., from a buyer (long) perspective.  Seller (short) of the strategy should otherwise place a sell order. 

Any Tailor-Made Combination, its related order and trade will be deleted by the Exchange if the Tailor-Made Combination is not one of the prescribed strategies or is not created as described.

Maximum Number of Tailor-Made Combinations Listed on HKATS per Business Day

The aggregated maximum number of Tailor-Made Combinations that can be listed on HKATS is 8,000 per business day. A limit of 800 per underlying per business day is also imposed. The Exchange reserves the right to delete any Tailor-Made Combination listed on HKATS when either limit is reached or the Exchange determines that the Tailor-Made Combination is inappropriate.

 

List of Prescribed Strategies for Tailor-Made Combinations
Quote Request Hotline
TMC Error Trade Related Information
Price Parameters for Error Trade Executed Through the Tailor-Made Combination Function of HKATS
The trade price of the Tailor-Made Combination trade is such that it exceeds whichever is the greater of:
i. 30 ticks from the Notation/Reference Price of the Tailor-Made Combination trade concerned; or
ii. 10 percent from the Notation/Reference Price of the Tailor-Made Combination trade concerned.
For the purpose of determining a Notation/Reference Price:
i.

the Exchange shall base on the average of the prices of the previous match and the next match occurring that trading day in that Tailor-Made Combination trades or if this fails to reflect a fair price or such prices are not available, the Exchange may consult up to 3 independent market practitioners who have no interest in the trade to arrive at a valid Notation/Reference Price; or

ii. if the market practitioners cannot provide a fair price of the Tailor-Made Combination trades concerned, the Exchange shall obtain the Notation/Reference Price* of each individual leg consisted of the Tailor-Made Combination trades in accordance with the Error Trades Rules for the respective HKFE product or Stock Options executed through the Central Order book, then the Exchange shall calculate the fair price of the Tailor-Made Combination trades concerned.
 
Parameters may be revised by HKEX in which case Participants will be notified before the change takes effect.
*Notation Price for Futures and Stock Index Options Contracts
1. The notation price for futures contracts shall be obtained in the following order:
i. last traded price within 5 minutes prior to the Error Trade;
ii.

the mid-point of the best bid/ask price immediately prior to the Error Trade;

iii. last settlement price; or
iv. the difference of notation prices between the related outright contracts (calendar spread only).
2. Determination of the notation price of the Stock Index Option Contracts will be based on the followings:
i. The average of the prices of the previous match and the next match in that option series occurring reasonably close to the time of error trade. If this average price fails to reflect a fair price, the notation price will be determined on the basis of item (ii) below.
ii. The reasonable bid and offer prices available around the time of error trade, unless in the sole discretion of the Exchange, this fails to reflect a fair price, in which case the Exchange may consult up to 3 independent market practitioners who have no interest in the trade in order to arrive at a valid notation price.
Notwithstanding the foregoing, the Exchange shall have absolute discretion in determining the notation price.
3. Notwithstanding the above, the Chief Executive of HKFE or his designee may adopt such other price to be the notation price as he considers appropriate, taking into account the market conditions prevailing at the time of the Error Trade.
*Reference Price for Stock Options Contracts
Determination of the Reference Price will be based on the average of the prices of the previous match and the next match occurring that trading day in that option series unless in the sole discretion of the Exchange, this fails to reflect a fair price, in which case the Exchange may consult up to 3 independent options market practitioners who have no interest in the trade in order to arrive at a valid Reference Price. Notwithstanding the foregoing, the Exchange shall have absolute discretion in determining the Reference Price.

     
For details, please refer to HKFE Rule 819B under Rules of the Futures Exchange for Futures & Index Options and Options Trading Rule 540 under Options Trading Rules of the Stock Exchange for Stock Options.