Negotiate in the Middle Trading Mechanism for Passive Order Matching
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Solution Overview
Problem
In certain markets, passive buy and sell orders of equal price are not automatically matched, requiring aggressive orders to trigger transactions, and existing electronic trading systems struggle to optimize voice protocols for commercial reasons, limiting negotiation flexibility and available trading prices.
Innovation Solution
An electronic trading system and method that allows 'negotiate in the middle' (NIM) trading, enabling buyers and sellers to negotiate prices between or equal to the best current bid and offer prices, using a distributed computer network with a private and public phase mechanism, anonymous and confidential negotiations, and finer pricing increments than traditional orders.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If passive orders are not automatically matched to avoid commission charges, then trading flexibility is improved, but market liquidity generation is worsened
Solution Approach 1:
The patent introduces an electronic intermediary system that automatically matches passive orders at the same price, eliminating the need for aggressive orders while maintaining commission-free trading. The matching engine acts as a mediator that facilitates trades between passive buyers and sellers without requiring one party to aggressively initiate the trade, thus preserving trading flexibility while improving market liquidity.
2Ease of operation
If traditional price increments are used, then market conventions are maintained, but pricing precision is limited
Solution Approach 1:
The patent changes the price increment parameter from traditional values (e.g., 1/32) to finer increments (e.g., 1/64 or 1/100). This allows traders to specify prices with greater precision while the electronic system handles the complexity of these finer increments, maintaining ease of operation through automated processing while achieving superior pricing precision.
3Productivity
If automated matching of equal-price orders is implemented, then trading efficiency is improved, but negotiation capability is worsened
Solution Approach 1:
The patent implements a dynamic order matching system where passive orders at the same price are automatically matched by default, but traders retain the option to withdraw their orders from automatic matching to engage in negotiation. The system dynamically adjusts between automated efficiency and manual negotiation based on trader preferences, achieving both trading efficiency and negotiation capability.
Data Source
AI summary
An electronic trading system and method are disclosed for implementing an electronic trading protocol that permits buyers and sellers to “negotiate in the middle” or “NIM” i.e., to negotiate the purchase and sale of an item (e.g., securities) at a price between or equal to the best current bid and offer prices for the item through the submission of an initial NIM order and one or more NIM counteroffer orders. In a preferred embodiment, each NIM session may comprise two phases, a NIM private phase and a NIM public phase. During the NIM private phase, the initial NIM order is presented only to the trader on the opposite side of the market with the highest ranked order based on price and time priority. During the NIM public phase, the initial NIM order is presented to all traders on the opposite side of the market with pending orders at the best market price. The trader who submitted the initial NIM order is preferably granted authority to determine whether or not a public phase for the NIM should be allowed.