There are numerous factors that influence how the assignments are disbursed among liquidity providers in the PAS.
- Members of the Assignment program are all treated equal. When a Liquidation occurs that cannot be filled by the order book, the total shares available for assignment are split equally between all active Liquidity Providers.
- Although all accounts are treated equal when assigning shares, the benefits of setting a higher max preference to receive assignment shares can still be seen in the distribution of assigned shares, if you are more able to receive more assignments in general (i.e., keeping sufficient margin to take opportunities), this will make you a more reliable provider and gives you the capability to receive a higher share.
- I.e if 500,000 contracts of FI_BTCUSD (whatever type) was assigned between 10 LPs (with 5 LPs set to max_position = 25,000 and the other 5 LPs set to max_position = 100,000), then firstly the liquidation assignment would be split equally between the 10 accounts at 50k. However as the first 5 accounts have a maximum of 25k, they would receive their max limits. This means that the remaining 125k that spilled over would be split between the other accounts.
Below is a direct description of the process:
- Mark Price for a contract or contracts changes, valuing positions at new amount.
- Liquidation occurs on margin account level (e.g., FI_BTCUSD) when position values fall below maintenance margin requirement.
- Assignments occur on a per Contract basis (e.g., FI_BTCUSD150618).
- We refer to the unfilled liquidation for a specific contract by U
- We refer to the set of liquidity providers whose general preferences are satisfied by P
- We allocate U among P according to their risk preferences
- Repeat the following process until U has been entirely allocated or P is empty.
- If P is empty and U has not been entirely allocated, then the remainder is unwound, with corresponding drop in Open Interest
Check out an Example of how an Assignment unfolds in out system.