Hybrid Auction Market Order Quoting and Execution
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Solution Overview
Problem
Current systems for securities trading lack integration between live floor auction markets and computer automated markets, limiting the ability to efficiently process and execute orders with price improvement opportunities.
Innovation Solution
A system and method that handle securities orders by receiving buy and sell orders with limit prices, determining immediate execution, and re-quoting them at minimum variations to achieve price improvement, while also allowing for automatic execution and routing to other market centers if necessary, thereby integrating live floor auction markets with computer automated systems.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If limit orders are received with prices above best offer or below best bid, then price improvement opportunities are created, but the orders cannot be immediately executed
Solution Approach 1:
The system performs preliminary actions by quoting the limit order at minimum variation prices (best bid - MPV for buys, best offer + MPV for sells) before actual execution. This preliminary quoting makes the order immediately executable while preserving the opportunity for price improvement if market conditions change favorably.
Solution Approach 2:
The system introduces an intermediary mechanism (the quoting process at minimum variation) between the original limit order and execution. This intermediary allows the order to be both executable immediately and potentially improve in price, resolving the contradiction between immediate execution and price improvement.
2Productivity
If limit orders are quoted at minimum variation better than published best bid/offer, then execution becomes possible, but system complexity increases
Solution Approach 1:
The system changes the price parameter of limit orders from their original limit prices to minimum variation prices (best bid - MPV or best offer + MPV) for quoting purposes. This parameter transformation enables immediate execution while maintaining a straightforward quoting mechanism that doesn't require complex algorithms.
3Productivity
If the system integrates live floor auction markets with computer automated markets, then market efficiency improves, but system complexity increases
Solution Approach 1:
The system achieves multi-functionality by enabling a single quoting mechanism to serve both live floor auction markets and computer automated markets. The minimum variation quoting approach works universally across different market types, integrating them without requiring separate complex systems for each market type.
Data Source
AI summary
A buy order is received with a limit price that is above a published best offer, and represented in the auction market. If the buy order is not immediately executed, it is quoted at a minimum variation better than a published best bid, and the price of the quoted buy order becomes the published best bid. Alternatively, a sell order is received with a limit price that is below a published best bid, and represented in the auction market. If the sell order is not immediately executed, it is quoted at a minimum variation better than a published best offer, and the price of the quoted sell order becomes the published best offer.