Anonymous Matching System for Institutional Liquidity
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Solution Overview
Problem
Current systems for generating liquidity through indications of interest face inefficiencies such as information leakage, lengthy negotiations, limited diversity in the liquidity pool, and transactions being limited to two parties, which result in high costs for institutional traders.
Innovation Solution
A confidential, anonymous matching system that uses unexecuted trading positions as indications of interest, alerts corresponding parties to potential matches, and allows these to be converted into firm orders through a matching algorithm, enabling multi-party trades and maintaining anonymity to prevent adverse price impact.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If institutions share their entire order size information with the markets, then liquidity visibility is improved, but adverse price impact increases
Solution Approach 1:
The patent introduces an intermediary matching system that acts as a mediator between institutional traders and the market. The system receives indications of interest without revealing the full order size to the market, thereby preventing adverse price impact while still providing liquidity visibility through the matching process
Solution Approach 2:
The patent creates a simplified copy or representation of the institutional order in the form of an indication of interest, which is submitted to the matching system. This copy provides market visibility without exposing the complete order details that would cause adverse price impact
2Ease of operation
If traditional indication of interest systems are used, then trader control is maintained, but information leakage occurs through negotiations
Solution Approach 1:
The matching system serves as an intermediary that facilitates the matching process without requiring direct negotiation between traders. This eliminates information leakage while maintaining trader control over their indications of interest
Solution Approach 2:
The patent extracts the negotiation element from the indication of interest process by implementing a automated matching system. This removes the opportunity for information leakage during negotiations while preserving trader control
3Adaptability or versatility
If indicative interest pools are expanded for diversity, then liquidity pool diversity improves, but system complexity increases
Solution Approach 1:
The matching system is designed with universal functionality that can handle diverse indications of interest from multiple sources (institutions, market makers, other participants) through a single unified platform, achieving diversity without proportional increases in system complexity
Data Source
AI summary
A system for generating liquidity includes a plurality of client user interfaces and a matching system. Each client user interface includes a trading desktop which stores unexecuted trading positions. The matching system is coupled with the plurality of client user interfaces and configured to receive information about the unexecuted trading positions. The system can identify as a match one or more first indications of interest which can fulfill one or more second indications of interest, based upon the information about the unexecuted trading positions. For the identified matches, the system can provide a notification of the match and an invitation to execute the match to corresponding client user interfaces. When an invitation is accepted, the system forwards an order to an order execution system for execution.