Trading Methods

Overview

Futures and options trading is conducted on an individual auction basis according to the price and time priority rule.

  • In the individual auction in a regular session, a contract price is determined by the Zaraba method. Transactions by the Zaraba method are executed among the matching orders according to the price and time priority rule at a price where the lowest offer and the highest bid are matched.
  • In the individual auction in an opening auction and closing auction and at the resumption of trading after a temporarily trading halt, a contract price is determined by the Itayose method described below.

How to Determine Contract Price by Itayose Method

A contract price determined by the Itayose method is the price that maximizes the traded volume and minimizes the untraded volume according to the price and time priority rule.

  • Market orders also have a priority based on the order acceptance time and are matched according to price and time priority rule. All the market orders that are not executed by the Itayose method are invalid. Therefore, market orders are not necessarily executed.
  • Regardless of whether a transaction by the Itayose method is made or not, a trading session moves to Zaraba after the time to conduct Itayose passes (excluding at the session end).

An order acceptance period is established like the beginning of trading and a transaction is conducted by the Itayose method at the same time of closing the order acceptance period.

  • In cases where the price determined by closing auction exceeds the defined price range (Executable Price Range in Closing Auction) from the last contract price, a transaction is not made. The Executable Price Range in Closing Auction is the same range as the Immediately Executable Price Range.

Rule to Determine Contract Price by Itayose Method

  Rule
Condition 1 The price where bids and offers match within the range between one tick above the highest order price and one tick below the lowest order price*1.
Condition 2 In the case where there are several prices that meet Condition 1, the price that maximizes the traded volume.
Condition 3 In the case there are several prices that meet Condition 2, the price that minimizes the difference between the cumulative volume of sell orders and the cumulative volume of buy orders (hereinafter called "surplus volume")
Condition 4 In the case there are several prices that meet Condition 3, the either price of the following:
  1. In the case where the cumulative sell volume is larger than the cumulative buy volume at all such prices, the lowest price;
  2. In the case where the cumulative buy volume is larger than the cumulative sell volume at all such prices, the highest price; or
  3. Otherwise, the price in Condition 5.
Condition 5 One of the following prices:
  1. In the case where the highest price among the prices at which the imbalance (if there are several prices at which there are imbalances on both sell and buy sides, it shall be limited to the lowest price among the prices at which there are sell-side imbalances and the highest price among the prices at which there are buy-side imbalances; the same shall apply hereinafter) is smallest is lower than the Reference Price, such highest price; ;
  2. In the case where the Reference Price falls within the range of the prices at which the imbalance is smallest, the Reference Price*2 ; or
  3. In the case where the lowest price, among the prices at which the imbalance is smallest, is higher than the Reference Price, such lowest price.
  • This executable price range may exceed the range defined by the price limits on bids/offers.
  • "Reference Price" shall be determined as follows:
    1. The last contract price on the trading day;
    2. In the case where the price described in (1) is not available, the reference price for the price limits on bids/offers on the trading day.

Please refer to the following file for the example of determining contract price by the Itayose method.

Example of Determining Contract Price by the Itayose method