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 Either of the following prices:
  1. In the case where the highest price of the prices that minimizes the surplus volume, (limited to the lowest price among the prices where the surplus volume becomes selling on balance and the highest price among the prices where the surplus volume becomes buying on balance, when the prices of selling on balance and buying on balance are included in the prices where the surplus volume is minimum; the same shall apply hereinafter) the highest price;
  2. In the case there is a Reference Price*2 between the lowest price and the highest price of the prices that minimizes the surplus volume, the Reference Price; or
  3. In the case where the lowest price of the prices that minimizes the surplus volume is higher than a Reference Price, the lowest price.
  • The 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 traded price on the trading day;
    2. in case there is no price described in (1), the standard price of bids and 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