07 - Trading and Risk
Trading Tunnels and Auction Rules
The main auction rules and trading tunnels for the DI1 Contract are:
- Auction Tunnel: price variation interval outside of which a trade activates an auction process;
- Average Price Tunnel: auction tunnel for which the price variation interval is established via the weighted average price of trades and recalculated every 15 seconds;
- Protection Tunnel: price variation interval that if breached automatically extends the auction duration (also applicable for opening and closing calls);
- Rejection Tunnel: price variation interval outside of which a trade is rejected.
| Contract Group Code* | Rejection Tunnel (bps) | Auction Tunnel (bps) | Average Price Tunnel (bps) | Maximum Quantity per Order (contracts) |
|---|---|---|---|---|
| D1 (1st, 2nd, 3rd and more liquid contracts) | +/-17 | - | +/-10 | 50,000 |
| D2 | +/-26 | - | +/-15 | 20,000 |
| D3 | +/-50 | - | +/-25 | 10,000 |
Position Limits
For each instrument, and by contract expiration, B3 establishes two differents limits calculated as the maximum between a certain percentage of the total number of contracts outstanding in the market and a fixed number of contracts, as shown by the following formula:
Limit1 = max [P1 × Q; L1]; and Limit2 = max [P2 × Q; L2]
Where, for each instrument in question:
Q = total number of contracts outstanding on the instrument
P1 and P2 = the percentage established by B3 corresponding to the instrument
L1 and L2 = fixed number of contracts established by B3 corresponding to the instrument
The two limits are set as follows:
- Limit 1 – indicative threshold for additional margin collection
- Limit 2 - indicative threshold for:
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I. Increase of required additional margin; and/or;
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II. Compulsory reduction of the position exceeding the limit; and/or;
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III. Fine charge.
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Margins
B3 provides a unique trade clearing and settlement structure that enables the development of an integrated central counterparty (CCP) risk management model, spanning multiple markets and multiple asset classes. In this sense, B3’s risk management model seeks to enhance:
- The robustness of B3’s CCP risk management processes, which are already recognized for their high hedging level; and
- Efficiency gains in participants’ capital allocation.
The required margin of option writers is calculated according to the CORE3 risk methodology. The required margin is defined by the risk of the investor’s portfolio. The margin to be required of an option sale transaction will therefore be a function not only of that transaction, but also of other positions and collateral that may be part of the investor’s portfolio. The value of the Maximum Theoretical Margin to be required of an option’s short position can be found on the B3 website (this represents the margin required of a portfolio containing a short position of one option amount with cash as collateral).
