Cboe Options to Introduce Wide Market Protection from April 2025
Cboe is set to roll out Wide Market Protection (WMP) on its options exchanges. This functionality aims to prevent trades from executing at poor prices during unstable market conditions. WMP will launch on April 3, 2025, on the EDGX Options Exchange. It will go live on April 7, 2025, on Cboe Options (C1), C2 Options, and BZX Options, subject to regulatory review.
What is Wide Market Protection (WMP)?
WMP is a risk control tool that helps protect market participants from unfavorable trade executions. It activates when market orders, limit orders, or elected stop/stop limit orders enter the book during wide markets. Its main goal is to limit the execution of orders at prices that deviate sharply from fair market levels.
When Will WMP Be Initiated?
WMP will trigger under specific conditions:
- When a market, limit, or elected stop/stop limit order is received while the NBBO is considered wide.
- When a stop or stop limit order is triggered, and the NBBO after the trigger is wide.
Cboe uses pre-established configurable parameters to determine when the NBBO is wide.
How Does WMP Work?
When WMP is active, protected orders are entered into the book at a benchmark price. The system then adjusts the price in steps toward the limit set by the trader. This helps minimize the risk of poor execution. WMP will automatically disable 30 seconds before the end of regular trading hours (RTH) and Curb sessions.
Criteria for “Wide” NBBO
Cboe deems the NBBO “wide” if the bid/ask spread exceeds the threshold defined by the Wide Market Protection Determinant. This threshold is based on the National Best Bid (NBB) price. The WMP thresholds are more conservative than the existing Obvious Error levels. Table 1 outlines the exact determinant values.
Benefits for Traders
This update will have these benefits for users:
Helps avoid poor trade executions
WMP prevents orders from filling at extreme prices when the market is unstable. Traders and investors are less likely to get unfavorable fills during wide bid-ask spreads.
Improves order handling during volatility
When the market is volatile and spreads widen, WMP holds incoming orders and releases them gradually at better prices. This reduces the impact of sudden price swings.
Provides more controlled execution
Orders are not immediately filled at the next available price. Instead, the system works them from a benchmark price toward the limit, giving investors more control.
Reduces exposure to price errors
Since WMP uses tighter limits than the existing Obvious Error rules, it helps catch and pause orders before they result in costly mistakes.
Signals potential illiquid or risky conditions
When WMP activates, it can indicate a wide or illiquid market. This helps traders reassess before committing capital in such conditions.
Minimizes end-of-day execution risks
By disabling WMP 30 seconds before market close, traders can plan better for end-of-day execution strategies without unexpected pauses.
About Cboe Global Markets
Cboe Global Markets operates a derivatives and securities exchange network. It provides trading solutions and products across multiple asset classes, including equities, derivatives, and FX in North America, Europe, and Asia Pacific.
Summing Up
Cboe’s introduction of WMP enhances protection against adverse price executions in wide markets. It responds dynamically to market conditions and limits execution risks. The rollout remains subject to regulatory review.
Register your company now and get featured on our homepage!
