Basic Market making for STIRS

1. Eurex Euribor
Market Making Ideas

2. Euronext Liffe Euribor
Ex A  Opposite I have
copied over the bid
Month size Bid Ask size
ask and sizes of the
euribor outrights on
Dec_08 100 95.995 96.000 500
Mar_09 450 96.495 96.500 80
LIFFE. Obviously the
Jun_09 250 96.655 96.660 170
bid asks like all
Sep_09 305 96.595 96.600 80
Dec_09 250 96.280 96.290 402
markets are
Mar_10 85 96.170 96.175 125
substantially reduced
Jun_10 100 95.960 95.965 130
from recent history.
Sep_10 105 95.780 95.785 93

3. Eurex Euribor
 Opposite are the bid asks
Ex B which are currently populating
the Eurex Euribor prices.
Month size Bid Ask size
(bid/Ask/Size) As you can see
these prices are ridiculously
Dec_08 100 95.985 96.010 100 wide compared to the primary
market. In my opinion, in a
Mar_09 100 96.485 96.510 100 market which is hungry for
Jun_09 75 96.640 96.670 75
liquidity in all asset classes,
making prices in the eurex
Sep_09 75 96.580 96.610 75 euribor would work very simply
and effectively. Your prices
Dec_09 75 96.270 96.295 75 would not have to be
exceptionally tight. I have
Mar_10 50 96.160 96.185 50
various ideas how to start
Jun_10 50 95.950 95.975 50 pretty simple market making
on Eurex.
Sep_10 50 95.770 95.795 50

4. Euronext Liffe Euribor Calendars
Ex E
 Opposite I have pasted
the Calendar spreads
Spread Size Bid Ask Size listed on Liffe for the 3mth
euribors. These should
z8/h9 200 -50.0 -49.5 700
be an integral part of any
h9/m9 300 -16.0 -15.5 1000
market making process
m9/u9 800 6.0 6.5 49 from liffe to euribor. When
u9/z9 1500 31.0 31.5 500 I did the cme/liffe euro$
these were my inside
z9/h10 828 11.0 11.5 50
market edge and enabled
h10/m10 600 20.5 21.5 1200
me to manage my risk.
m10/u10 2000 17.5 18.5 1856

5. Most Basic method. Half a tic edge
eurex priced around liffe.
Ex C
 Opposite I have
copied the most basic
Month size Bid Ask size
method to make a
Dec_08 150 95.990 96.005 150 market around liffe
Mar_09 150 96.490 96.505 150 prices. Simply making
Jun_09 150 96.650 96.665 150 a price around liffe.
Sep_09 150 96.590 96.605 150 This of course would
Dec_09 100 96.275 96.295 100 be perfect in an ideal
Mar_10 100 96.165 96.180 100
world. And to test the
Jun_10 100 95.955 95.970 100
application this would
Sep_10 100 95.775 95.790 100
be the place to start.

6. Malcolm Method
 Opposite is what I did in euro$. In many
cases my price is the same as one of Liffe’s
Ex D
offers or bids. I calculate my bid ask spread
based off the edge I can create by selling
the offer or buying the bid. If I can lay off the
Month size Bid Ask size edge into another contract and produce
edge in the calendar spread I will make the
Dec_08 250 95.990 96.000 250
same bid or ask as liffe. This way I am sure
to be the best bid / offer and this will enable
the product to becoe attract to traders and
Mar_09 250 96.495 96.505 250 flow. The math is very simple. If you take my
bid in Dec 09, we are the same as Liffe, but
Jun_09 250 96.655 96.665 250 I know if I get given on the bid I have
options to sell mar10 at 96.17 (creating me
long the z9/h0 @ 11) if there is no edge I
Sep_09 250 96.595 96.605 250 will remain outside the liffe price. The next
stage is managing the calendar I have
Dec_09 150 96.280 96.290 150 created with a guaranteed stop on the 11
bid working an offer at 11.5 OCO. And the
process continues,
Mar_10 150 96.165 96.180 150
Jun_10 150 96.955 96.970 150
Sep_10 150 96.780 96.790 150