OneChronos Rates User Manual

Introduction

This section provides information about the Rates Platform (“OCM-R”) of the OneChronos Fixed Income ATS, its technology, connectivity, surveillance, operations, Expressive Bidding, and relevant policies as they pertain to trading on or engaging with the OCM-R or related services. OCM-R is operated by OneChronos Markets LLC, a wholly owned subsidiary of OCX Group Inc.

All references to OneChronos refers to OneChronos Markets LLC, the broker-dealer and Operator, unless expressly stated otherwise. This document is updated from time to time. This version is considered the active User Manual. In the case of any differences in this version and a prior version, this version will supersede.

Capitalized terms if not otherwise defined have the meaning set forth in the OCM-R Subscriber Agreement between OCM-R and its Subscribers or users.

Expressive Bidding

Trading interest is communicated to the ATS as an Expressive Bid (“EB”). In this User Manual we will use “Order” and EB” interchangeably. An EB establishes trading interest in one or more instruments. For example, an EB can enumerate two instruments in a spread trade, such as a 10-year US Treasury Note and a 5-year Treasury Note. Each of these Notes is then a leg of the Expressive Bid. EBs can support any number of instruments available on the platform. An EB specifies a Subscriber’s fill conditions, potentially spanning multiple instruments, that define the Subscriber’s trading interest.

Participation on the OneChronos ATS

Entry of orders on the OCM-R is limited to Subscribers. Only broker-dealers that are registered with the SEC and are members of FINRA, are eligible to become Subscribers. Orders will be submitted by Subscribers to OCM-R via an electronic messaging protocol.

Trading Operations

OCM-R operates periodic auctions at a rate of approximately 30 auctions per minute throughout the ATS operating hours, as further described below. Auctions are initiated by OCM-R at deliberately randomized times according to this cadence.

Matching Process

Rather than matching orders continuously as they arrive at OCM-R (as with a central limit order book), the matching engine accumulates EBs. The ATS periodically holds auctions (roughly every 2 seconds) designed to seek an optimal configuration of fills across all eligible EBs. These auctions are multi-lateral in that one or more buyers may be matched with one or more sellers in the same instrument. While by default an EB persists until the end of the trading session, an EB supports multiple parameters for controlling its lifecycle. With these parameters, the subscriber can limit the persistence of the EB on the OCM-R book to a number of auctions or a number of seconds. It can also expire an EB after the first (and possibly partial) fill. No EB may persist beyond the end of the trading session.

OCM-R uses the technique of mathematical optimization to match and clear Subscribers’ orders. Optimization generally involves searching through a large number of possible solutions and identifying the best among the solutions encountered; in our case, the best matching arrangements. As a means of comparing the quality of solutions, an “objective function” is defined to maximize (or minimize) a pre-determined goal of the search in OCM-R’s matching process. That search process for the objective is bound by predefined “constraints” which act as boundary limits to the relevant variables: e.g. quantities, prices, yields, and instruments. A simple example of a constraint in OCM-R’s optimization is that clearing yield must be above a Subscriber-specified threshold. The match process jointly considers all eligible orders across all instruments in that auction to match them fairly on their expressed terms.

Market Operations

The OneChronos auction cycle consists of two phases, which occur in sequence and are repeated throughout the ATS’s trading hours:

1. Accumulation Phase: during this phase, matching does not take place, but the system accumulates EBs to participate in the next matching phase
2. Matching Phase: the ATS matches EBs jointly across all instruments, in a way that satisfies the constraints associated with each of the EBs. During this phase cancellation requests of resting EBs are locked out.

At the conclusion of the matching phase of the auction cycle, OCM-R communicates auction results in the form of execution reports to external parties, including Subscribers that are parties to a trade, OCM-R’s direct clearing provider, and FINRA’s Trade Reporting and Compliance Engine (TRACE).

An entire elapsed time of auction cycle varies randomly from 0.6s to 3.4s, whereas the matching phase always takes 0.5s. As a result of this variability, auctions will be run on average every two (2) seconds.

Orders entered into OCM-R are “firm.” The ATS does not support modification of resting orders, but Subscribers can cancel and replace resting orders. Cancellation requests received and timestamped before the Cutoff Time (i.e. during the Initialization Time) have immediate effect. Cancellation requests received after the Cutoff Time but before the completion of the auction cycle do not have effect until the following cycle (and therefore the order may still participate in the auction notwithstanding the cancellation request).

Currently, OneChronos operates one Point of Presence (“PoP”) at Equinix NY3 in Secaucus, NJ. OCM-R operates Monday through Friday from 7:00am ET to 5:30pm ET. OCM-R will follow any SIFMA-recommended holidays or early market closures.

Each Subscriber must either be self-clearing or have a clearing arrangement with a clearing firm acceptable to OCM-R. OneChronos has engaged a third-party clearing firm, as a broker-dealer clearing agent to facilitate the clearing and settlement process. OneChronos’s clearing firm will submit trades matched on the ATS for clearing to the Fixed Income Clearing Corporation (“FICC”), to be settled regular way. OneChronos Markets LLC is matched principal for all transactions that are matched on OCM-R. Clearing and settlement of transactions is subject to applicable rules of the relevant clearing house.

Access and Connectivity

Only Subscribers can access the OCM-R to submit EBs. A Subscriber must execute a Subscriber Agreement and in order to do so must represent and warrant that it (i) is duly registered under the Securities Exchange Act of 1934 with the SEC as a broker-dealer; (ii) is a member of FINRA (iii) is registered and/or qualified in those states and other jurisdictions where its business requires such registration and/or qualification; and (iv) has the necessary right, power and authority to execute and deliver an Agreement such as the Subscriber Agreement and to perform its obligations thereunder.

OneChronos allows Subscribers to connect directly to the ATS via cross-connect or via extranet, through one or more of the ATS’s PoPs. The currently maintained PoP is located at Equinix NY3. Orders may only be submitted electronically. The ATS does not accept telephone orders.

Market Quality and Risk Controls

At every auction, OCM-R matches EBs at prices (equivalently, yields) that are constrained to be within a range, whose center and width is determined through OCM-R’s dynamic analysis of recent market activity. Market-wide activity will be collected from third-party sources and the ATS itself.

Subscribers can employ constraints within their EB to help manage their portfolio’s sensitivity to market movement. The OCM-R Technical Reference Guide provides further details of this feature.

OneChronos will establish and administer one or more Credit Limits for each Subscriber, in its sole discretion and as set forth in the Subscriber Agreement. OneChronos acts as matched principal to every transaction executed on OneChronos. Accordingly, OneChronos measures each Subscriber’s Credit Limit utilization relative to the current clearing status of its transactions. A Subscriber’s transaction contributes to its Credit Limit utilization until it is novated, the point at which FICC, as central counterparty, interposes itself between the parties and assumes the exposure. A transaction is considered novated if FICC has successfully compared OneChronos’s and the Subscriber’s respective transaction details. A transaction is not considered novated until FICC has successfully compared the transaction details. Credit Limit utilization attributable to a transaction is adjusted upon novation, and in any event upon settlement of the transaction. OneChronos will dynamically determine each Subscriber’s Credit Limit utilization using one or more risk-based measures, which may include a DV01 weighted 10YR equivalent across all US Treasury instruments. At each auction, OneChronos will not match a trade that would cause a Subscriber’s utilization to exceed its Credit Limit at that time. Because utilization is re-evaluated on an ongoing basis as market conditions change, the risk attributable to a Subscriber’s open (un-novated) transactions may move above its Credit Limit after execution, even without any new transaction. While a Subscriber’s utilization exceeds its Credit Limit, OneChronos will exclude the Subscriber from subsequent auctions until its utilization returns within the limit.

Technology, Security and Resiliency

With regards to security and resiliency, OneChronos has controls relating to: Centralized identity management, Authentication, Authorization, Encryption, Physical security, change management, monitoring, third party risk assessment, access to and use of confidential information, as well as monitoring of employee activity. Further to physical security, the data center itself provides a high level of security and availability through redundant and reliable environmental control systems. In addition, data center personnel are available 24/7 to maintain and service the system.

The matching engine is designed to efficiently scale even as order volume and order complexity grows. In addition to OneChronos maintaining sufficient server capacity for projected growth, the mechanism is designed in a way that uses advances in computer science, probabilistic search and artificial intelligence reinforcement learning techniques, the combination of which are deliberate and critical to support scale and intelligent distribution of computational resources.

Business Continuity Plan

OneChronos recognizes the importance of system and process resilience in operating an ATS and the potential for unforeseen events to interrupt normal operation. Accordingly, the firm maintains a Business Continuity Plan (“BCP”) defining how we will respond to events that significantly disrupt our business. Our BCP Disclosure Statement can be found here.

Access

Access to the OCM-R is only available upon execution by a Subscriber of a Terms of Service agreement and completing the steps as described in the onboarding process. Please contact info@onechronos.com for further information or to initiate onboarding.

Policies and Procedures

Acceptable Use Policy

Use of OCM-R is subject to this Acceptable Use Policy. Subscribers agree not to use OCM-R or related services, and not to allow third parties to use OCM-R or related services:

• to violate, or encourage the violation of, the legal rights of others;
• to engage in, promote, or encourage fraudulent, manipulative or other illegal activity;
• if such usage is prohibited under United States law, including laws related to embargoes and sanctions;
• for any unlawful, invasive, infringing, defamatory, or fraudulent purpose;
• to interfere with the use of the ATS, or the equipment used to provide the Services, by Customers, or other authorized users;
• to disable, interfere with, or circumvent any aspect of the Services. Users are also bound by the terms of their executed Agreements with OneChronos, including but certainly not limited to disclosing Confidential Information for reasons not permissible in that Agreement, or uploading source code or other information that contains or embodies any malware or destructive feature.

Error Policy

Subscriber is solely responsible for the accuracy and completeness of all EBs it transmits to OCM-R and all EBs will be considered firm. When a Subscriber submits an EB that does not reflect the Subscriber’s intentions, it is considered a Subscriber error. OneChronos does not generally cancel or modify any transaction executed on OCM-R that results from a Subscriber error. OneChronos will coordinate with subscribers to cancel or adjust such transactions on a best efforts basis. OneChronos reserves the right, to be exercised at its sole discretion, to cancel any transaction that it determines to be erroneous. OneChronos will comply with any applicable legal or regulatory requirement to cancel or unwind a transaction.

Surveillance

The ATS uses a combination of proprietary and commercial software that monitors:

• trading system status, utilization, connectivity, and message rates
• anomalies in trading data (orders, executions, reports, market data)
• centrally aggregated system and application log data for anomalous events and unauthorized access to critical systems and systems containing Confidential Trading Information.

OneChronos has developed automated tools for monitoring orders entered and trades executed by Subscribers on the ATS. These tools are intended to assure routine compliance with SEC and FINRA trading regulations, and also to identify significant volume or price changes in securities, or unusual or unexplained patterns of activity. Trade reviews based on these reports are generally conducted periodically by qualified supervisory personnel in accordance with the Firm’s Written Supervisory Procedures (“WSPs”). In addition, OneChronos produces daily and monthly reports of Subscriber activity conducted on the ATS. Supervisory personnel review these reports for significant changes, including changes in volume and strategy, as well as for unusual or unexplained patterns of activity. In cases where exception reports highlight potential exceptions that exceed threshold parameters, or where reported activity cannot be satisfactorily explained, a surveillance review will be initiated.

OneChronos maintains WSPs, which, in addition to other supervisory practices, further details surveillance of trading activity as well as the trading activity and information access of OneChronos employees. In addition, the OneChronos WSPs detail compliant practices with regards to monitoring and, as necessary, reporting Suspicious Activity.

Errors & Corrections

OneChronos maintains Written Supervisory Procedures that include procedures for handling execution errors. Execution errors may be the result, for example, of an ATS system failure or an error on the part of an ATS Subscriber. In any of these cases, ATS personnel contact all Subscribers party to the transaction or transactions affected by the error and determine the appropriate course of action. If all Subscribers party to the trade wish to keep the trade in place and applicable FINRA, SEC, and SRO rules allow, no action is taken and the trade is processed. If one or more of the Subscribers wish to break or correct a trade, the Operator may accordingly cancel or issue corrections for erroneous trades. If OneChronos determines a transaction to be a bona fide error, the Operator may in its sole discretion accept erroneous legs of a transaction into an error account maintained with the Operator’s clearing provider. The Operator promptly trades out of any positions it takes into the error account via execution services offered by its clearing provider. Supervisory personnel reviews all activity in the Operator’s error account on a monthly basis to ensure that the account maintains a zero balance and that the account is only used for bona fide errors.

OneChronos may also suspend trading temporarily if it detects certain error conditions that materially impact its ability to match trades. These error conditions include: loss or material degradation of communication between the matching engine and one or more PoPs; matching engine system errors; loss or material degradation of communication between market data sources and the matching engine; loss of connectivity with the Trade Reporting and Compliance Engine (TRACE).

Privacy Policy

When you visit sites operated by OneChronos, you consent to our use and processing of your information as set forth herein. This Privacy Policy covers OneChronos’s treatment of personal information that OneChronos gathers when you use or visit the Site and that our business partners share with OneChronos.

Confidentiality

Subscriber and OneChronos each may receive or have access to non-public information of the other Party in connection with the Subscriber Agreement and the Services provided relating to it. Such non-public information is deemed “Confidential Information” of the Party to which it belongs. Subscribers and OneChronos shall hold in strict confidence the Confidential Information of the other Party, using the same degree of care that each uses to protect its own information of a similar type, but in no event less than a commercially reasonable degree of care. A receiving Party shall not disclose Confidential Information of the other Party for any purpose not expressly permitted under the relevant Subscriber Agreement. Please see the Subscriber Agreement for complete information relating to Confidential Information and for the specific conditions by which the Subscriber or OneChronos may disclose the other’s Confidential Information.

With regards to Confidential Trading Information, a type of Confidential Information, OneChronos defines such information as: orders and order handling instructions, executions, clearing reports, and risk configurations. The commingling of data that would otherwise not be considered confidential, for example, raw FIX messages appearing in application performance logs, with Confidential Trading Information is also treated as Confidential Trading Information. Individuals with access to a system that stores or processes Confidential Trading Information are considered to have access to that information.

OneChronos’ activities as a broker-dealer are limited to operation of two ATSs. Employees operating OCM-R may have access to Confidential Trading Information. A Series 24 registered supervisor (“ATS Supervisor”) ensures OCM-R restricts access to Confidential Trading Information to employees who are operating OCM-R, those whose roles require access to such information for performing their duties, or those responsible for compliance with Reg ATS and other applicable rules.

OneChronos personnel with access to Confidential Trading Information are only authorized to use such information as required by their job functions. They cannot disseminate such information to anyone not authorized to receive that information. OneChronos requires all employees, including those with authorized access to Confidential Trading Information, to undergo annual compliance training that includes instruction and attestation relating to the protection of Confidential Trading Information. In addition, OneChronos maintains Written Supervisory Procedures that govern the use of Confidential Trading Information.