The QDP Difference

Cboe’s Quote Depletion Protection (QDP) is a patent-pending, optional instruction that market participants can use in conjunction with Midpoint Discretionary Orders (MDOs) on Cboe’s EDGX® and EDGA® Equities Exchanges. When activated, QDP disables an MDO’s discretionary range for a short period when the exchange’s quote indicates the price may move in a manner that could result in a more aggressive execution price. Since Cboe launched QDP in June 2020, our North American Equities Execution Consulting Team has monitored how market participants appear to use it and has continued to evaluate potential enhancements. Cboe believes QDP remains a beneficial tool for market participants, especially those using certain strategies.

Popular Use Cases

From January through July of this year, Cboe has observed that market participants appear to use QDP primarily in connection with the following two strategies:

• Dark Liquidity Aggregation Strategies | The QDP instruction for MDOs allows participants to add exchange hidden liquidity to their traditional alternative trading system (ATS) aggregation algorithms with protection against potential adverse execution prices.
• Passive Legs of Benchmark Strategies | Cboe has observed that some participants have incorporated QDP into passive legs of their benchmark strategies when it appears they are seeking fills at the passive midpoint before crossing the spread. Cboe believes QDP may help improve the execution price of these strategies, as it may prevent more aggressive discretionary fills when the market is moving against them, thus creating the potential for the order to fill at a more passive price.

QDP Results on EDGX

As illustrated below, based on data from January through July of this year, the QDP signal is approximately 76% accurate when triggered. Additionally, when QDP is triggered, the quote remains unchanged about 22% of the time and only moves in the opposite direction approximately 2% of the time.

QDP Signal Accuracy

Source: Cboe

QDP signal opportunity calculates the midpoint-to-midpoint move during the period from signal activation to termination. As shown in the chart below, on average from January through July 2021, the QDP signal results in approximately 3.5 basis points (bps) of potential price protection per MDO when activated.

QDP Signal Opportunity

Source: Cboe

MDOs with the QDP instruction receive fills at the midpoint about 76% of the time. The remaining MDOs receive fills at the passive side of the National Best Bid/Offer (NBBO) or better, while a small portion receive fills at the offset price.

QDP Execution Location

Source: Cboe

In addition to the accuracy and potential savings of QDP as demonstrated above, the innovative order type and instruction may help participants minimize potential outliers and protect themselves from adverse selection. Please reach out to our Cboe coverage team to discuss additional ways QDP can be deployed in your trading strategies.

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^{The information in this letter is provided for general education and information purposes only. No statement(s) within this letter should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this letter is available by contacting Cboe Global Markets at www.cboe.com/Contact.}