Market making obligations on index and stock options

Market makers on the IDEM market play a relevant role improving the liquidity of the market and the efficiency of the price discovery process.

Market makers must fulfill obligations in terms of series and expiries to be quoted, minimum quantity to be quoted, maximum spread allowed and time. Right now, there are more than 20 market making firms displaying bids and offers on a continuous basis or responding to "requests for quotes" on several underlyings. The list of market making firms active on the IDEM is available on Borsa Italiana's website.

MARKET MAKING STATUSES

Members of the IDEM may apply for admission as market maker or specialist, provided that they have the necessary qualification to fulfil the obligations required.

Members can choos among three different market making status:

Primary Market Maker (PMM): continuous quotation obligation, available for options and futures, also for electricity futures listed on IDEX
Market Maker (MM): obligation to respond to quote requests, available for options and for electricity futures
Liquidity Provider (LP): continuous quotation obligation, available for options and for electricity futures listed on IDEX

Members of the IDEM may also apply for admission as "specialists" if they intends to use another company (belonging to the same group and authorised to trade in its home country) to perform quoting activity.
Specialists can choose among three market making statuses:

Primary Specialist (PS): continuous quotation obligation, same obligations as PMM
Specialist (S): obligation to respond to RFQs, same obligations as MM
Liquidity Provider Specialist (LPS): continuous quotation obligation, same obligations as LP

FTSE MIB INDEX OPTIONS

Options on the FTSE MIB index options with expiries up to 5 years are listed on the IDEM.
Market makers and specialists on index options have the following obligations.

Obligation Type	PMM/PS	MM/S	LP/LPS
Expiries	First 7 expiries (2 monthly, 4 quarterly and 1 half-yearly up to 18 months).	All 12 expiries listed (up to 5 years).	First 4 expiries (2 monthly and 2 quarterly up to 6 months).
Series	5 call and 5 put series in a group of nine series centred on the at-the-money series. Between the ninth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled on 3 call and 3 put series. The quotation obligations for the nearest maturity shall cease to apply on the fourth trading day before the expiry day.	The at-the-money, the first 5 series out-of-the-money and the first 5 series in-the-money. On the sixth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled for: the at-the-money series, the first 2 in-the-money and the first 2 out-of-the-money series.	Tra 5 call and 5 put series in a group of nine series centred on the at-the-money series. Between the ninth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled on 3 call and 3 put series. The quotation obligations for the nearest maturity shall cease to apply on the fourth trading day before the expiry day.
Quantity	15 contracts for the first three consecutive expiries, 10 contracts for the fourth, the fifth and the sixth expiry, 5 contracts for the seventh expiry.	10 contracts for all exipiries.	15 contracts for the first three consecutive expiries, 10 contracts for the fourth expiry.
Spread	Spread dependent on the bid price.	Spread dependent on the bid price and on maturity.	Spread dependent on the bid price.
Time	Obligation to quote continuously with a maximum allowed time to restore quotations equal to 2 minutes.	Obligation to respond to a "request for quote" within 2 minutes and keep the quote on the orderbook for at least 30 seconds.	Obligation to quote continuously with a maximum allowed time to restore quotations equal to 2 minutes.
Quotation hours	9.30 am-5.20pm	9.30 am-5.20pm	9.30 am-5.20pm
Reference epsilon	90%	80%	90%

Spread obligations for the FTSE MIB index options

Market makers and specialists, displaying bids and offers on the orderbook must observe the following tables for options with expiry up to 1 year.

Bid price(index points)	Spread(index points)
From 1 to 200	30
From 202 to 500	50
From 505 to 1,000	100
From 1,005 to 2,000	150
From 2,005 to 4,000	300
Greater than 4,000	450

Market makers and specialists, displaying bids and offers on the orderbook must observe the following tables for options with expiry over 1 year.

Bid price (index points)	Spread(index points)
From 1 to 500	75
From 505 to 1,000	150
From 1,005 to 2,000	250
From 2,005 to 4,000	500
From 4,005 to 6,000	750
Greater than 6,000	1,000

STOCK OPTIONS

Stock options with expiries up to 1 year are listed on the IDEM. The most liquid contracts of the IDEM make up a group called "Focus Group"; for these contracts, stock options with maturity up to 3 years are listed on the IDEM.

In order to provide liquidity on all listed stock options, market makers and specialists are required to undertake obligations on a fixed minimum number of contracts. Some of these contracts need be chosen from the "Focus Group" whose obligations in terms of quotation size are greater than those obligations for the other contracts.

Obligation Type	PMM/PS	MM/S	LP/LPS
Number of underlyings	Minimum 20 underlyings, of which all constituents of the "Focus Group"	At least 5 underlyings	At least 1 underlying
Expiries	First 4 expiries (2 monthly and 2 quarterly, up to 6 months). For underlying belonging to the Focus Group also the fifth and the sixth expiries need to be quoted.	All 6 expiries (up to 1 year), plus the 4 half-yearly expiries for the listed long options.	First 4 expiries (2 monthly and 2 quarterly, up to 6 months)
Series	4 call and 4 put series in a group of nine series centred on the at-the-money series. Between the ninth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled on 3 call and 3 put series. The quotation obligations for the nearest matutiry shall cease to apply on the fouth trading day before the expiry day.	The at-the-money, the first 5 series out-of-the-money and the first 5 series in-the-money for expiries up to 1 year, the at-the-money, the first 5 series out-of-the-money and 2 series in-the-mony for expiries from 1 yaear up to 3 years. On the sixth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled for: at-the-money series, the first 2 in-the-money and the first 2 out-of-the-money series.	4 call and 4 put series in a group of nine series centred on the at-the-money series. Between the ninth and fifth trading day before the expiry day the obligations for the nearest maturity must be fulfilled on 3 call and 3 put series. The quotation obligations for the nearest matutiry shall cease to apply on the fourth trading day before the expiry day.
Quantity	Depending on the underlying. For constituents of the Focus Group size obligations are halved on the fourth, fifth and sixth expiry.	40 contracts for constituents of the "Focus Group", 20 contracts for all other underlyings and for options with maturity over 1 year.	Depending on the underlying. For constituents of the Focus Group size obligations are halved on the fourth expiry.
Spread	Different spread tables according to the underlying stock price and dependent on the bid price.	Different spread tables according to the underlying stock price and dependent on the bid price.	Different spread tables according to the underlying stock price and dependent on the bid price.
Time	Obligation to quote continuously with a maximum allowed time to restore quotations equal to 2 minutes.	Obligation to respond to a "request for quote" within 2 minutes and keep the quote on the orderbook for at least 15 seconds.	Obligation to quote continuously with a maximum allowed time to restore quotations equal to 2 minutes.
Quotation hours	9.30am- 5.20pm	9.30am- 5.20pm	9.30am- 5.20pm
Reference epsilon	85%	80%	85%

Spread obligations for stock options

Market makers and specialists, displaying bids and offers on the orderbook must observe the following tables for options with expiry up to 1 year.

Spread Table "A" Bid price (Euro)	Spread(Euro)
0.0005 - 0.2000	0.050
0.2005-0.5000	0.080
0.5005-1.000	0.120
Greater than 1.000	0.250

Spread Table "B" Bid price (Euro)	Spread(Euro)
0.0005 - 0.2000	0.100
0.2005-1.0000	0.150
1.0005-2.0000	0.200
Greater than 2.0005	0.500

Spread Table"C" Bid price (Euro)	Spread (Euro)
0.0005 - 0.5000	0.150
0.5005-2.0000	0.300
2.0005-5.0000	0.500
Greater than 5.0005	1.000

Market makers and specialists, displaying bids and offers on the orderbook must observe the following tables for options with expiry over 1 year.

Spread Table"A" Bid price (Euro)	Spread (Euro)
0.0005 - 0.2000	0.100
0.2005-0.5000	0.150
0.5005-1.000	0.250
Maggiore di 1.000	0.500

Spread Table"B" Bid price (Euro)	Spread (Euro)
0.0005 - 0.2000	0.200
0.2005-1.0000	0.300
1.0005-2.0000	0.400
Maggiore di 2.0005	1.000

Spread Table"C" Bid price (Euro)	Spread (Euro)
0.0005 - 0.5000	0.300
0.5005-2.0000	0.600
2.0005-5.0000	1.000
Maggiore di 5.0005	2.000

Spread tables - allocation of contracts

Exemptions from quotation obligations

Borsa Italiana may temporarily relieve market makers from their obligations under the following circumstances:

Suspension from trading of the underlying of the financial instrument or suspension from trading of a significant percentage of the financial instruments included in the index where the reference underlying is the index
Anomalous increases in the volatility of the price or bid-ask spread of the underlying of the financial instrument or anomalous increases in the volatility of the underlying index
Any other circumstances preventing the regular performance of the market

The exemptions from quoting obligations are always provided in real-time on the trading platform. Fixed terms exemptions are available on Borsa Italiana's website.

Further details on market makers and specialists on the IDEM market are available on the Instruction accompanying the Rules of Borsa Italiana S.p.A.

Last update: February 2 2011 - 11:36