CQG & ICAP: The Solution For Fixed Income TradersSingle point of contact.

Single point of execution.

A CQG White PaperJune 2007

By Thom Hartle

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Table of Contents

Introduction Page 3

Section 1: Fixed Income Cash and Futures Market Data Page 4

Section 2: Quotes, charting and analytics displays Page 14

Section 3: Order Routing (Benchmarks and Futures) Page 27

Section 4: Summary Page 30

Appendix 1: ICAP Data Information Page i

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For the fi xed income trader, such as a ten-year trader, there is much more than just the market direction and supply issues to deal with. There is a barrage of informa-tion and factors driving their profi tability on the fi xed income desk. Below is one list of factors the fi xed income trader must deal with that can affect their profi tability:

The direction of the individual benchmarks The value of the trader’s portfolio relative to the curve Movement of the basis (changes in the cheapest to deliver) Any stripping programs affecting demand and supply balances Buy or sell programs in the basis market Managing a portfolio including the benchmark and 10-year series issues Tracking current and historical relationships between issues in the 10-year series Any large agency deals that are being priced Supply and demand factors driving the swap market The relative value of the ten-year U.S. Treasury to bund, gilts, and futures Maintaining a fl ow for retail customers Bidding in Treasury auctions News,worldwide economic releases and statistics Intermarket analysis driving the fi xed income market, such as oil prices.

CQG offers fi xed income traders an integrated solution in one system: cash and fi xed income futures market data, quotes, charting and analytics, order routing (both bench-mark treasuries and futures), trading model evaluations modules, alerts based on mar-ket conditions, Dow Jones News, CQG’s open API and CQG’s 24-hour support.

The Solution: CQG

The Challenges

CQG Turnkey System. CQG’s versatile components can be tailored to meet the traders need for instant ac-cess to information. The combination of these features makes the CQG platform a turnkey single system for the fi xed income trader.

INTRODUCTION

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ICAP, the world’s premier interdealer broker, is the original source of global mar-ket information and commentary for professionals in the international fi nancial markets. Derived from ICAP’s global daily average transaction volumes in excess of USD 1.5 trillion, 50% of which is electronic, ICAP’s unique market information is the original source of prices across a wide range of asset classes, time zones and instruments.

ICAP’s BrokerTec platform is recognized as the source of authoritative global electronic US Treasury trading activity. Through CQG, traders can both access BrokerTec data and directly execute trades on the BrokerTec platform. No change in interface is required to execute trades.

Section 1: Fixed Income Cash And Futures Market Data

Figure 1.1: Treasury Data. Dis-played are the BrokerTec price and yields for the benchmarks, off-the-runs, DOMTraders for the BrokerTec 10-year and the ten-year Treasury futures market, and the 10-year price chart.

The next four Figures display examples of BrokerTec pages detailing yield bar charts, butterfl y spread charts, and CQG Spread bar charts. CQG’s spread bar charts will plot the spread values as open-high-low-close chart by the trader se-lected bar interval, for example, 60-minute bars.

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Figure 1.2: BrokerTec Yield Charts. The daily bar charts of the Treasury benchmarks makes for quick analysis of the performance of each issue.

Figure 1.3: BrokerTec Butterfl y Spread Chart. Butterfl y spreads can be set up as CQG Q-formulas, and displayed as quotes and charts.

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Figure 1.4: BrokerTec Yield Curve Spreads. The charts use CQG’s Spread chart display. The chart plots an open-high-low-close bar of the spread difference between the benchmarks.

Figure 1.5: BrokerTec MBS. The Fannie Mae yield spread to the Ten-year Treasury yield is dis-played in the two middle charts. The top chart is the 60-minute spread bar chart and the middle chart is the daily spread bar chart.

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Available Order Routing ExchangesBourse de Montreal KCBOT BrokerTec U.S. Treasury MGECBOT/e-CBOT NYBOTCME/Globex NYMEXCOMEX Osaka (OSE)Eurex Sydney (SFE)Euronext Singapore (SGX)ICE USFE (Eurex-US)JADE WCE

Futures ExchangesCQG has provided fi xed income futures traders access to market data since 1980. Now, order routing to the following electronic exchanges is available

Figure 1.10: Fixed Income Futures Markets. Trade from the chart using CQG’s TradeFlow with SnapTrader, an order interface for trading from the chart of the futures market.

Figure 1.10 shows the CQG Quote Board displaying both cash and fi xed income futures quotes. The left-hand chart is the ten-year Treasury Futures contract. The bottom chart is the 2-10 year spread chart. The top right-hand display is order the CQG Order Ticket. Orders for the futures markets can be placed and managed us-ing this interface. The bottom chart is CQG’s TradeFlow with SnapTrader.

Section 2: Quotes, Charting And Analytics DisplaysCQG offers six types of quote displays ranging from the classic Quote Board dis-playing the open-high-low-last to CQG’s Enhanced Quote Spreadsheet, a com-pletely customizable quote display Enhanced Quote Spreadsheet, a completely customizable quote display with over 200 fi elds available. In addition, the All Contracts display will list the outstanding Treasury issues along with the current benchmark at the bottom.

Figure 2.1. Quote Spreadsheet: BrokerTec Cash Benchmark and Futures page: List columns of data for comparing issues at a glance.

HTK: Hit or TakeBid: Current best bidAsk: Current best askVLB: Volume last bidVLA: Volume last askYLDB: Yield bidYLDA: Yield ask Best

LTS: Last trade or settlementNLTT: Net last trade todayVLT: Volume Last tradeLWU: Last Workup VolumeHigh: High for the sessionLow: Low for the sessionOpen: Open for the session.

Over 200 market data elements are avail-

able for the trader in the Quote Spreadsheet.

Here is a key to the columns in the BrokerTec

Cash Benchmark and futures page.

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Figure 2.2. Quote Spreadsheet: The BrokerTec 10-year Off the Run Page.

Figure 2.3: Enhanced Quote Spreadsheet. Every cell is customizable. Over 200 market data elements are available for display.

Figure 2.4. Custom Quote Board: A fully customizable quote display presenting pertinent price data, as well as study values.

Figure 2.5: Quote Board. Classic open-high-low and last display with CQG’s thermometer, which shows the current price relative to the open, high, and low.

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Figure 2.6: Market Watch: Create market groups by asset class. Market Watch uses CQG’s thermometer, which shows the current price relative to the open, high, and low.

Figure 2.7: Last/Net Change. Details a list of contracts with the last price and change.

Figure 2.8: All Contracts: Dis-plays a list detail-ing each issue’s OHLL, net change, and previous day’s settlement.

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Fixed income traders build up an expected scenario for the issues they track based on a combination of fundamental and technical analysis. Once a scenario is in mind, good traders monitor the course of the fi xed income market with an eye towards the price action unfolding within a course they expect, and if price action deviates from their expectations they have cues to alert them to a change may be at hand. One foundation for the technical trader is the combination of charts and studies or indicators. Here, we’ll review CQG’s collection of chart styles, fourteen in all, and then we will look at CQG analytics for supporting sound technical analysis.

CQG offers fourteen styles of charts. The classic bar, line, candlestick and point & fi gure charts are available. In addition, a number of other charts styles are available that aid the trader in charting markets that trade on a 24-basis and experience peri-ods of low activity. Here is a list of charting styles available to the trader:

Figure 2.9: BrokerTec Daily Ten-year Yield Treasury Benchmark. As with much of CQG’s features, all of the attributes of the OHLC bar charts can be modifi ed. The open menus’ titles refer to which chart element is to be modifi ed and lists manageable features.

Bar Line Spread bar Candlestick Market Profi le Tick Constant Volume Bar No gap TradeFlow™ Equalize Sessions Percent bar Yield bar Fill Gap Point-&-fi gure

Charts

The left-hand toolbar lists chart management elements including setup, chart resizing arrows, adding studies, intraday and historical charts, chart types, and pointer tools.

A right-click on the any element on the chart will bring up menus for making the look and feel of the chart exactly to the trader’s specifi cations.

Click on the Setup button to set chart p r e f e r e n c e s , colors and fonts. Set preferences, as well, as customize the toolbar.

Click anywhere on the chart to access cursors, pointer tools, add studies and more.

Roll the mouse over the bars for bar values.

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TradeFlow charts highlight what traders are doing, buying or selling. Other chart-ing styles display trades as the last price. You do not know whether a trader hit the bid (sold) or paid the ask price (buy) to generate the last price. TradeFlow charts detail whether traders are lifting offers or hitting bids.

The TradeFlow bar is color-coded on a percentage basis. The green portion represents the total volume of executed trades at the ask price for the TradeFlow bar. The red portion corresponds to the percentage of volume of trades at the bid price (selling). The width and the brightness of the TradeFlow bar is based on a relative comparison of the current bar’s volume to a range of volume listing in the look back period.

TradeFlow ™ Charts & TradeFlow Studies

Figure 2.10: BrokerTec 10-year Treasury TradeFlow Chart. Trade-Flow is CQG’s innovative charting style where the TradeFlow bar is color-coded to track traded volume executed at the ask price versus the bid price. The high and the low of the TradeFlow bar is the best bid and ask prices.

Wide and brightly colored TradeFlow bars indicate heavy volume of trading, while narrow and dark TradeFlow bars indicate low participation by traders.

The study in the middle pane is the TradeFlow Volume™ study (TFVol). This study displays the traded volume at ask price as the green histogram bars and the trad-ed volume into the bid price as the red histogram bars. The traded volume at the bid is plotted as a negative number.

The bottom study is the TradeFlow On Balance Volume™ study (TFOBV).

The TradeFlow bar is color-coded on a percentage basis. The green portion is the percetnage of volume traded at the ask price. The red portion is the percetnage of volume traded into the bid price.

Wide, brightly colored bars indicate heavy volume. Thin, dark bars indicate low volume.

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TradeFlow Charts can be attached to the DOMTrader as an aid to trading fi xed income futures and benchmark Treasuries. The DOMTrader is one of CQG’s order routing interfaces. The depth-of-market view from the e-cbot details the current bids and offers along with the current size. The TradeFlow chart will detail the ac-tion traders take at the best bid and ask prices. You can see whether traders are hitting bids or paying the ask price by the color-coding.

The default version of TradeFlow uses the inside market for the high and low of the TradeFlow bar. There is an aggregation feature available in CQG version 7.4. The TradeFlow bars are built using a high-low range based upon ticks, which compresses the price action and executed volume information. The tick range can be from 1-20 ticks.

The bottom two charts are aggregated forms of TradeFlow. In these two examples, the 10-year and the 30-year Treasury contracts are set to a fi ve-tick aggregation. In this case, all of the TradeFlow bars have a maximum range of fi ve-ticks.

In addition, CQG traders can create custom studies. In this example, elements of the TradeFlow bar (traded volume at the bid or the offer) are components of the two studies.

Figure 2.11: TradeFlow Charts and Financial Futures Trading. The TradeFlow chart is linked to the CQG DOMTrader as an aid for trading fi xed income futures.

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Next, we will review the standard charting displays available (bar, candlestick, point & fi gure, and line charts) and then CQG’s solutions to dealing with unique challenges to trading 24-hour markets, which create periods of low activity and can adversely affect studies due to the price gaps.

In Figure 2-12, the Ten-year Treasury is displayed four charting styles with stud-ies. The top left chart is the classic OHLC bar chart with Bollinger Bands and the MACD study. The top right chart is the candlestick version. The chart on the bot-tom left is the point & fi gure chart of the yield. The trader can modify the box size and reversal count, and colors. The chart on the bottom right is a simple line chart using 60-minute closing levels.

Figure 2.12: Bar, Candlestick, Point & Figure, and Line Charts. The Ten-year Treasury is dis-played four charting styles with studies.

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The top left-hand chart is the current 10-year Treasury benchmark (4.5% of Nov 2015) plotted as a price OHLC bar chart. The top right-hand chart is the OHLC yield version of the same security. CQG offers the following models for calculating the yield: standard bill, simple bond, standard bond, Moosmuller and Braess-Fang-meyer for German bunds.

The chart on the bottom left is the 10-year Treasury benchmark plotted as stan-dard OHLC price bar chart. The chart on the bottom right is the Percent Bar chart. The Percent Bar chart can be set to a base line value. Here, the close of the end of the month of September is the base line value (i.e. zero). The last price on the Percent Bar chart indicates that the price is up 0.261% as of November 2, 2006.

Figure 2.13: Bar, Yield and Per-cent Bar Charts. The top left-hand and bottom left hand charts are the 4.5% of Nov 2015 (cur-rent 10-year treasury benchmark) plotted as price bar charts for comparison to the yield chart and the Percent Bar chart.

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With CQG, any time frame can be selected for building charts, from ticks out to annual bars. The bottom two charts are the ten-year Treasury futures (bottom left) on a 30-minute basis and the Market Profi le Chart (bottom right) of the ten-year Treasury futures contract.

Developed by J. Peter Steidlmayer, the default version of the Market Profi le chart details price action on a 30-minute basis. The Profi le chart breaks down trades by price and creates a distribution curve. The Market Profi le distributions are con-structed of Time Price opportunities (TPOs). Each TPO letter identifi es a time-period when the market traded at the price listed on the vertical axis. The volume profi les are the horizontal bar appearing to the right of each Market Profi le distribution.

Figure 2.14: Tick, Line and Market Profi le. The tick chart shows (top left) every print and the line chart (top right) shows the yield on a 5-minute closing basis of the Ten-year Treasury benchmark yield. The bottom right-hand chart is the Market Profi le Chart.

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The CQG spread bars are open-high-low-close bars of the spread price. Most spread charts just display the last price based on the interval chosen. CQG Spread bars display the high and the low traded based on the interval. Common studies, such as Bollinger Bands, support and resistance analysis, and other studies can be used with the CQG Spread bars. You have a choice of line, bar and candlestick formats for the chart.

In this Figure 2.15, the top left-hand chart is a typical 60-minute close only of the 2- to 10-year spread. The chart on the right is the CQG Spread bars format, which are the OHLC bars of the 2- to 10-year spread. The bottom left-hand chart is the candle-stick version of the CQG Spread bars. The bottom right-hand chart is the 60-minute spread bars of the 2- to 30-year spread with the Bollinger Band study applied.

Figure 2.15: 2-year minus 10-year Treasuries Spread Charts. The CQG spread bars are open-high-low-close bars of the spread price.

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Figure 2.16: The Analog Chart. Traders may overlay multiple mar-kets on the same chart.

CQG’s analog chart offers the ability to make comparisons among different markets. Multiple markets can be placed on one chart for comparison of price action. The right hand and left hand scales can be used to compared markets prices or yields. The four issues displayed are the 5%, 5 ½%, 6% and the 6 ½%, Ginnie Mae TBAs.

Today’s 24-hour markets present unique problems for traders using technical analysis and studies. There are periods when low activity creates gaps in the price charts, and volume drops down to zero for extended periods. This can lead to charts displaying empty spaces and studies to exhibit unusual readings. The next series of charts details CQG’s innovative charting styles that deal with these problems in the 24-hour markets.

The constant volume (CVB) chart does not use time. The algorithm plots a chart when a defi ned number of ticks or actual contracts trade. Figure 2:16 uses a set-ting of 150 ticks. A new bar is plotted once the current bar’s total tick volume exceeds 150 trades. Time is not a factor.

Analog or Overlay Charts

CQG Chart Solutions

to 24-Hour Markets

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The two charts cover approximately the same period. Notice how the CVB displays a more orderly trend. The standard bar chart shows extended sideways action and low volume readings during the night sessions. The CVB chart compresses these low volume periods into one bar.

Traders can use tick volume for fi xed income cash prices and yield charts. Actual executed volume is used in the futures markets for plotting CVB bars.

Figure 2.18: Bar, Fill Gap, No Gap, and Equalize Session Bars. Each chart is the 15-minute bar chart of the BrokerTec 10-year Treasury benchmark displaying the various versions to remove gaps.

Figure 2.17: 10-Year T-note Con-stant Volume Bar Chart. The chart on the left is a 30-minute chart of the 10-year benchmark with tick volume. The chart on the right is the constant volume bar chart (CVB) set to 150 ticks per bar.

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Figure 2.19: BrokerTec 10-year Treasury Yield Chart. Here, a 60-minute and a 10-minute chart with studies are presented. Stud-ies can be modifi ed by right-click-ing on the study.

Fill Gap, No Gap, and Equalize Session Bars are designed to remove low activity period from the charts. In Figure 2.17, each chart is the 15-minute bar chart of the BrokerTec 10-year Treasury benchmark. The 15-minute bar chart displays periods where the chart has gaps due to no trading activity. The Fill gap chart plots the last price fi lling in the gaps. The No Gap chart removes the gaps and time is compressed. The Equalize Sessions chart adjusts all opening and closing prices to remove gaps.

CQG comes with over 90 studies available for technical analysis. All studies can be modified to suit the trader’s interest. The example below displays two CQG charts with a set of studies. One is a 60-minute chart and the other is a 5-minute chart of the 10-year benchmark yield. The studies can be added by clicking on the Toolbar button, if listed, or by right clicking on the chart and using the menu to add the study. All studies can be modified by clicking on the study. In the example below, the bars are colored green based on the condi-tion that if the Directional Movement Index Up line is above the Directional Movement Down line.

CQG Studies

and Analytics

Section 3: Order RoutingCQG’s order routing for the benchmark Treasuries is facilitated through the Bro-kerTec platform.

Figure 3.1: CQG Benchmark Or-der Routing. CQG offers traders the opportunity to custom design their pages to insure optimal use of the screen.

Order routing for futures markets is provided through CQG’s Hosted Gateway Ser-vices. CQG has partnered with over 30 Futures Commissions merchants (FCMs), and continues to add new FCMs. CQG provides all exchange connectivity between the trader and the exchanges on behalf of the FCM. CQG maintains all of the Gateway infrastructure hardware, exchange connections, and database systems. CQG provides the FCM with CAST (Customer Account Service Tool). CAST is a web-based application hosted by CQG. CAST is the application used to create and manage sales series, customers and traders accounts, margining, and risk param-eters. Traders have to open an account with an FCM from CQG list of partners in order to use the CQG order routing.

CQG offers trailing stops and order-cancels-order (OCO) functionality. Trailing stops and trailing stop limits will automatically change as a trade moves into profi table territory. OCO orders allow the use of chained orders. Bracket a trade with a target price and a stop order to control your risk. If one order is hit, the other order is canceled.

DayGood-till-CancelledFill and KillFill or KillStopStop LimitTrailing StopTrailing Stop LimitOrder-Cancels-OrderManual Fills*Order managed by CQG’s Gateway as some of these may not be sup-ported by all exchanges.

Order types & durations:

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Figure 3.2: Single Point of Execu-tion. CQG’s DOMTrader provides a depth-of-market view of Bro-kerTec benchmark Treasuries and electronically traded futures. The TradeFlow chart is linked to the DOMTrader. Displayed is the CQG Order Ticker detailing order activity in the exchange’s book.

In addition manual fi lls (trades executed outsife CQG’s Gateway) can be entered into the futures account.

CQG provides four-order entry and management interfaces. This page dis-plays the DOMTrader with the TradeFlow chart linked to the DOMTrader. The TradeFlow chart uses the same price scale as the DOMTrader. Features of the

Figure 3.3: Multiple DOMTraders. Each DOMTrader has four tabs for quick changing of order rout-ing pages. Or, create a page with multiple DOMTraders displayed.

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DOMTrader can be customized including colors and lay out of order entry but-tons. Orders can be placed by clicking on the price, or by dragging and dropping.

CQG’s Order Ticket, SnapTrader and Order Book are three more order routing tools for futures traders. The Order Ticket combines a depth-of-market window, ten order entry buttons, and six order entry management windows with an array of function buttons to set size and order modifi ers.

The Order Ticket has ten order entry buttons. The buttons detail real-time price and size from the DOM. The top four buttons are used for placing limit and stop (stop limit) orders. The bottom six are scalper style buttons to place orders at the market, best bid or best ask prices.

The six order management panes display working orders (which can be canceled or chained), fi lled orders, cancelled orders, exceptions, parked (orders parked and managed by the CQG Gateway), and all orders.

The SnapTrader is a versatile, movable order entry interface for placing market, stop and limit orders. The Order Book is also displayed on the chart. It will list open positions and working orders. Working orders can be cancelled from the Order Book.

Figure 3.4: The Order Ticket is on the right hand side and shows resting orders in the DOM win-dow for the Ten-year Treasury note futures traded on the e-cbot. The bottom left hand chart has SnapTrader, a movable order en-try tool enabling you to trade right from the chart.

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The Snap Trader and Order book can be used on the TradeFlow charts. The Snap-Trader displays the best bid and ask price when you fi rst add the SnapTrader to the chart. To change the order to a limit or stop order, you click on the up or down arrows to bring up the horizontal price cursor. The SnapTrader will automatically display limit buy or sell stop orders if cursor price is below the market and auto-matically display limit sell or buy stop orders if price is above the market.

Figure 3.5: The TradeFlow chart of the Ten-year T-note contract is aggregated at three ticks. Each TradeFlow bar has a high-low range of three ticks (minimum price movements, not volume of trades). Use the SnapTrader and Order book for order routing right from the TradeFlow chart.

SummaryFixed income traders must process a myriad of information to effectively mange their responsibilities on the trading desk. The critical components are access to accurate market quotes, analytical tools, access to news, order routing, and port-folio tracking. Reliability is key.

CQG Integrated Client, as the name implies, provides the entire solution in one package:

Market data Quote displays Charting Studies Order routing CQG API Training & Support

The combination of these features makes the CQG platform a turnkey system for the fi xed income trader.

Appendices

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ICAP Data product DetailMONEY MARKETS

Deposits Currency deposits

CD’S & CD’S O/B Certifi cates of Deposit

INTEREST RATE DERIVATIVES

FRAS Forward Rate Agreements

FRAs IMM IMM Dated FRA

IRS Interest Rate Swaps

IRS closings ICAP IRS closing rates

IRS - Short Swaps Short dated IRS

IRS IMM IMM dated swaps

Forward Swaps EUR Forward swaps

Swap Swap Spreads Inter currency swap spreads

Swap Bond Spreads Swap v Gov bond spreads

OIS SONIA&EONIA Overnight Index Swaps

Forward OIS (EONIA) Forward Eonia

Basis Swaps Basis Swaps (vs 3M USD Libor & Euribor)

CMS Constant Maturity Swaps

Infl ation Swaps Infl ation swaps

Interest Rate Options Implied vols / premium mids / BP vols

Interest Rate Options Caps&Floors implied vols / premium mids

Zero coupon curve ICAP discount factors (+outright)

FIXED INCOME

Government bonds - Eurozone Euro zone Government bonds (active issues)

Government bonds - Gilts UK government bonds (active issues)

Europe: EUR, GBP, CHF, CZK, DKK, HUF, NOK, PLN, SEK, SIT, SKK, TRY, ZAR

Appendix - ICAP Information

PRODUCT DETAIL / Instrument typeINTEREST RATE DERIVATIVES

FRAs Forward Rate Agreements

Short Swaps Short Swaps

IRS IRS

Basis Swaps US Basis Swaps

US Swap Spreads

US Med Swaps (ABB/SBB) (AMM/SMM)

US Money Mkt Swaps (IMM)

USD IROs USD Swaption implied vols/premium mids

USD Caps/Floors Implied Vols/Premium Mids

FIXED INCOME

US Treasuries US Treasuries - GovPX

Mortgages Mortgages

US: USD, CAD