Centralized Crossing Network Order Block Execution
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Solution Overview
Problem
Crossing networks in the financial industry face issues such as susceptibility to manipulation and reduced liquidity due to the large number of available venues, dispersing buyers and sellers, which increases the likelihood of gaming and reduces the chances of executing trades at the right time.
Innovation Solution
A system utilizing a central computer to receive and match buy and sell orders, forming an order block that is executed at the National Best Bid and Offer (NBBO) midpoint after a threshold volume is reached, with a notification alerting participants to submit additional orders within a time window, thereby increasing average trade size and reducing gaming risks.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If multiple crossing networks are available to traders, then traders can choose different venues for trading, but buyers and sellers are dispersed across multiple venues which reduces liquidity and increases the number of transactions required to trade large orders
Solution Approach 1:
The patent combines multiple crossing network venues into a single consolidated crossing network that aggregates buy and sell orders from multiple participants. This merging approach concentrates liquidity in one venue while still allowing traders access to multiple counterparties, resolving the contradiction between venue diversity and liquidity concentration.
2Loss of information
If orders are publicly disclosed upon arrival at crossing networks, then market transparency is improved, but information leakage occurs which adversely impacts execution quality
Solution Approach 1:
The patent implements preliminary matching of buy and sell orders within the crossing network before any public disclosure occurs. Orders are matched in private based on price and quantity criteria, and only the execution results are publicly disclosed. This preliminary action prevents information leakage about individual order intentions while maintaining market transparency through execution data.
3Reliability
If crossing networks provide complete anonymity for orders, then execution quality is protected from information leakage, but the system becomes susceptible to manipulation and gaming
Solution Approach 1:
The patent implements feedback mechanisms where the central computer monitors order patterns, trading volumes, and price movements in real-time. When potential manipulation or gaming behavior is detected, the system can reject suspicious orders, alert regulators, or adjust matching parameters. This feedback loop maintains anonymity for legitimate traders while detecting and preventing manipulative behavior.
4Productivity
If traders submit orders to multiple crossing networks to execute large orders, then the likelihood of finding matching orders increases, but the number of transactions increases which increases exposure to gaming and reduces efficiency
Solution Approach 1:
The patent consolidates multiple crossing network functions into a single venue that aggregates orders from multiple participants. Traders can submit large orders to this single consolidated venue and access the combined liquidity of all participants, eliminating the need to trade across multiple separate venues and reducing transaction complexity while maintaining high execution probability.
Data Source
AI summary
A system and method may include a central security transaction-assisting machine receiving from at least a subset of a plurality of system participants initial orders to buy and sell a security; a processor of the machine matching at least a subset of the initial buy orders to at least a subset of the initial sell orders based at least on quantity; the processor forming an order block of at least a subset of the matched orders; responsive to a threshold volume of matching orders being reached, the central machine broadcasting a cross announcement to each of the plurality of participants, where the cross announcement indicates a beginning of a time window during which further matching orders to buy and sell quantities of the security are presentable for inclusion in the order block; and, at an end of the time window, executing the order block.