# Pulse FAQ’s – TMC’s

First of all, you may ask: What is a TMC?

Below we will present our take on TMCs (as programmers/developers).

TMCs allow you to buy and sell securities at the same time. Its advantage is that the buy and sell transactions will only occur when the conditions for all buys or sells are met. So either none of the transactions occur, or they all occur.

Each security buy or sell in a TMC is called a leg. A TMC can have up to 4 legs. For each leg, you specify:

• The security (its symbol)
• The number of shares or contracts (as a ratio)

The number of shares is really used to determine a ratio between the legs. For example, if a TMC is created that specified 6 shares in one leg and 2 shares in another, then the ratio is actually 3 to 1. The ratios in fact need to be reduced to their lowest common denominator. Pulse will detect when the ratio is not at the lowest common denominator and can adjust the number of shares accordingly.

When you buy a TMC, you are actually buying the securities in the 'Buy' legs of the TMC and selling the securities in the 'Sell' legs of the TMC. For example, consider a TMC with 2 legs.

• Buy, Security=BHP, Number of shares=3
• Sell, Security=RIO, Number of shares=1

If you bought one of these TMCs, you would actually have bought 3 BHP shares sold 1 RIO share.

Obviously a TMC can be priced based on its constituent legs. For example, if BHP's price is ~ \$40 and RIO's price is ~ \$70, then we would expect the each TMC to cost ~ \$50. The calculation for this is 3 x BHP Price - 1 x RIO Price (3 x 40 - 1 x 70 = 50). We can calculate the TMC's bid price and the TMC's ask price from its constituent legs in the same fashion.

The above TMC uses a 'Pay' strategy. The strategy is called 'Pay' because you have to pay money to obtain a TMC. However if the legs were the other way around so that you were selling 3 BHP shares and buying 1 RIO share, then the TMC would use a 'Receive' strategy; you would receive money when you obtained a TMC. With TMCs you use the Buy/Sell nomenclature when referring to the legs - however you use the 'Pay/Receive' nomenclature when talking about the TMC itself.

TMCs are commonly used when trading Exchange Traded Options (ETOs). You then also need to consider the Contract Multiplier for ETOs.

In the following discussion below Paritech will present to you our view of how TMCs work with Exchange Traded Options (ETO).

Firstly, you need to be aware, that when you make an order for an ETO (a normal order - not a TMC order), the quantity specifies the number of contracts you are buying - not the number of options. The actual number of options is determined by the "Contract Multiplier" for the ETO. This value specifies the number of options in each contract. So the actual value of the order (excluding brokerage) will be:

In Pulse, when you place a normal order, the Contract Multipler is shown at the bottom of the order pad to assist with determining the consideration of the order.

Above we described how a TMC order can have up to 4 legs. One or more of these legs can specify an ETO. However all the ETOs in a TMC must have the same "Contract Multiplier" value. So like with ETO orders, the actual quantity of options bought or sold with a TMC, needs to be multiplied by the common Contract Multiplier.

So what happens if a TMC contains both equity legs and ETO legs? In this case, the common ETO Contract Multiplier is also used to multiply the quantity of equities. For example, if you created a TMC with the following legs:

• Buy, Symbol: BHP (equity), Ratio: 2
• Sell, Symbol: BHP81 (ETO with Contract Multiplier of 1000), Ratio: 3

Then for each of these TMC you buy, you would actually buy 2000 BHP shares and sell 3000 BHP81 options.

You can think of a TMC as having a "Contract Multiplier" just like ETOs. If any of the legs are an ETO, then the TMC's contract multiplier will have the same value as that for the ETO. If all the legs are equities, then the TMC's contract multiplier is 1.

Important note: Paritech developers are NOT brokers, nor are they financial adviser. Please consult your broker or adviser for a more definitive description of TMCs