Non-Binding Indication System for Securities Trading
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Solution Overview
Problem
Traders face challenges in executing large-volume securities transactions without affecting market prices, as existing strategies require significant effort and overhead, and may limit potential matches, while also risking information leakage and speculation.
Innovation Solution
A system and method that allows for confidential and anonymous discovery of a qualified counterparty by transmitting non-binding indications to an electronic trading marketplace, determining a total available quantity, and generating a binding order, minimizing market intervention and information disclosure.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If large-volume trade orders are transmitted to electronic trading marketplaces, then transaction execution capability is improved, but market price stability deteriorates due to excessive publicity and speculation
Solution Approach 1:
The patent introduces an intermediary system that sits between the trader's OMS and the ETM. This intermediary receives large-volume orders, breaks them into smaller indications of interest, and transmits them to the ETM. This mediation allows the trader to execute large transactions without directly exposing the full order size to the marketplace, thereby reducing market impact while maintaining execution capability
Solution Approach 2:
The patent segments a large-volume order into multiple smaller indications of interest. Instead of transmitting one large order that would attract market attention, the system divides it into several smaller pieces that can be executed separately. This segmentation reduces the visibility and impact of each individual transmission while collectively achieving the large-volume transaction goal
2Object-affected harmful factors
If trade orders are spread into smaller orders across multiple markets, then market impact is reduced, but trading effort and overhead costs increase
Solution Approach 1:
The patent implements self-service automation where the system automatically breaks down large orders, selects appropriate ETMs, and transmits indications of interest without requiring manual trader intervention for each step. The automation handles the complex task of dividing orders and managing multiple market connections, significantly reducing trading effort and overhead while maintaining the benefits of fragmented order execution
3Reliability
If limit orders are placed with price limits to prevent unfavorable trading, then price risk is controlled, but potential matches are limited and trader attention is required
Solution Approach 1:
The patent applies partial action by transmitting indications of interest that represent only a portion of the total order at a time. Rather than placing comprehensive limit orders that restrict matching possibilities, the system sends partial indications that can be executed against available liquidity without imposing strict price limits that would prevent favorable matches. This approach allows the system to capture more potential matches while still managing price risk through controlled exposure
Data Source
AI summary
A method for facilitating securities transactions is shown. In one embodiment, the method includes identifying, by a computer system from an OMS comprising a plurality of stored security orders, a subset of orders specifying at least a minimum available quantity; transmitting, by the computer system to an ETM, a non-binding indication corresponding to one order of the subset of orders, the non-binding indication comprising a security identifier and the order type; receiving, by the computer system, an indication that a match exists to the non-binding indication; determining, by the computer system, a total available quantity for the order corresponding to the non-binding indication; and transmitting, by the OMS, a binding order corresponding to the non-binding indication, the binding order comprising the determined total available quantity. Corresponding systems are also described.