Electronic Market Opening Price Determination
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Solution Overview
Problem
In electronic equity markets, imbalances between buy and sell orders at the opening of trading can lead to undesirable locked or crossed conditions, disrupting market orderliness.
Innovation Solution
A method is implemented in a computer system to receive and process eligible orders, disseminate an order imbalance indicator, determine the optimal opening price to execute orders, and manage orders to prevent locking or crossing, using a benchmark like VWAP to ensure a stable market opening.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If all eligible orders are executed at opening to maximize trading volume, then productivity is improved, but locked or crossed conditions may occur disrupting market orderliness
Solution Approach 1:
The system performs preliminary calculations of the order imbalance indicator at multiple price levels before the actual opening execution. By预先 determining which price levels would result in locked or crossed conditions, the system can adjust the opening price in advance to avoid these problematic states while still maximizing trading volume.
Solution Approach 2:
The system continuously calculates and monitors the order imbalance indicator as a feedback mechanism. This indicator provides real-time information about the state of buy and sell orders at different price levels, allowing the system to identify price levels that would create locked or crossed conditions and adjust accordingly to maintain market orderliness.
2Productivity
If the opening price is determined to maximize order execution, then productivity is improved, but the price may deviate from benchmark prices causing market instability
Solution Approach 1:
The system dynamically adjusts the opening price by changing the price parameter within acceptable boundaries. It balances the desire to maximize order execution with the need to maintain price stability by keeping the opening price within a predetermined percentage of benchmark prices, thus resolving the conflict between productivity and stability.
3Reliability
If the system calculates order imbalance indicator at multiple price levels to prevent locked/crossed conditions, then market orderliness is improved, but device complexity increases
Solution Approach 1:
The system performs self-service by automatically calculating order imbalance indicators, identifying locked or crossed conditions, and adjusting opening prices without external intervention. This automation manages the inherent complexity of the system while maintaining market orderliness, as the complex calculations are performed autonomously by the electronic market system itself.
Data Source
AI summary
A method, executed in a computer system, for opening an electronic market for trading of a security is described. The method includes receiving by the computer system eligible orders and quotes for the security traded in the electronic market and disseminating an order imbalance indicator indicative of predicted trading characteristics of the security at the open of trading. The method also includes determining by the computer system a price or prices at which the maximum shares would be executed and determining which price would minimize any imbalance of eligible orders and executing at least some of the eligible orders at the determined opening price.