Minimum-or-None Order Execution for Confidential Trading
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Solution Overview
Problem
Market participants face disadvantages when their buy/sell orders are publicly displayed, as this can reveal their trading strategies and potentially disrupt the market, especially when order sizes and prices are significant.
Innovation Solution
The introduction of a Minimum-or-None Order (MON Order) type, which remains undisplayed and only becomes executable when a specified trigger quantity of shares is reached, allowing for execution against both displayed and undisplayed liquidity across multiple trading centers.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If market participants send buy/sell orders to a trading center, then the orders can be executed, but the orders become publicly displayed which reveals trading strategies and may disrupt the market
Solution Approach 1:
The order execution process is segmented into two distinct phases: a hidden waiting phase where the order is not displayed, and an execution phase where the order is filled. This segmentation allows the order to remain confidential until execution, resolving the contradiction between executing orders and protecting trading strategy confidentiality.
Solution Approach 2:
The system performs preliminary actions by pre-screening orders against the trigger quantity condition before they become executable. Orders are evaluated in advance to determine if they meet the minimum liquidity threshold, allowing them to remain hidden until ready for execution, thus protecting confidentiality while ensuring executable status.
2Quantity of substance
If market participants send large orders, then more shares can be bought/sold, but the displayed order size may cause drastic market movement
Solution Approach 1:
The large order is segmented into a hidden portion (trigger quantity) and an executable portion. Only the necessary trigger quantity is exposed to the market through the trigger condition, while the full order size remains hidden. This segmentation allows execution of large quantities without exposing the full size that would cause market disruption.
Solution Approach 2:
The order type introduces a new parameter (trigger quantity) that changes the execution conditions. Instead of executing immediately upon display, the order executes when the trigger quantity condition is met, allowing large orders to be filled without continuous market exposure and reducing disruptive impact.
3Loss of information
If orders remain undisplayed to protect confidentiality, then trading strategy is hidden, but the order cannot be executed without visibility
Solution Approach 1:
The trigger quantity acts as an intermediary mechanism between the hidden order and the execution system. It provides a visible signal to the market about liquidity availability without revealing the actual order intent, enabling execution capability while maintaining confidentiality through this intermediate trigger condition.
Solution Approach 2:
The system automatically screens and evaluates orders against the trigger quantity condition without requiring public display. The order execution is self-service in that it automatically executes when conditions are met, eliminating the need for visible order books while maintaining execution capability through automated trigger monitoring.
Data Source
AI summary
The systems and methods relate to a new securities order type—the MON Order—which remains undisplayed and does not become executable until a minimum trigger quantity is reached, thereby making such order executable. The MON Order includes information that indicates a symbol of the security, the number of shares of the security to buy/sell, the side of the order and a trigger quantity. For limit orders, the order also includes a limit price. The MON Order may be received by an initial trading center that may determine whether the trigger quantity is satisfied based on the available number of shares for the security in the marketplace, where the available number of shares is based on the aggregate of (i) the displayed and undisplayed liquidity for the security at the initial trading center, and (ii) the displayed accessible liquidity at one or more away trading centers that is known to the initial trading center. When the available number of shares is equal to or greater than the trigger quantity, the initial trading center may (i) execute the MON Order against the shares available on the initial trading center's book, and (ii) send additional orders (such as ISOs marked IOC, if appropriate) for the security to the one or more away trading centers to execute against their respective accessible liquidity, as necessary.