Remote Market Maker Issue Allocation System
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Solution Overview
Problem
Traditional market making processes are inflexible, limiting market makers' ability to select and quote for financial instruments beyond predefined trading locations, and do not accommodate remote participation effectively.
Innovation Solution
A system and method for allocating quoting rights to market participants, where issues are ranked based on trading parameters, and a cumulative selection value is used to authorize remote market makers to stream quotes, allowing for customizable issue selection and virtual bins.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If traditional market making processes are used with predefined trading locations, then market structure and control are maintained, but flexibility for market makers to select issues is limited
Solution Approach 1:
The patent applies parameter changes by introducing a selection value parameter for each issue and a cumulative selection value parameter for market participants. These parameters dynamically change based on trading activity metrics, allowing the system to automatically adjust which issues are assigned to which market participants without manual intervention or predefined location constraints.
Solution Approach 2:
The system implements self-service by automatically assigning issues to market participants based on their cumulative selection values and the issues' selection values. The allocation process occurs without manual intervention from exchange staff or predefined location assignments, with the system autonomously determining optimal allocations based on current market conditions and participant performance.
2Ease of operation
If remote market making is enabled, then market participant accessibility is improved, but authorization and control mechanisms become more complex
Solution Approach 1:
The patent replaces the mechanical system of physical presence requirements and manual authorization with an electronic automated allocation system. Remote market participants are authorized through electronic communication and automated assignment based on their cumulative selection values, eliminating the need for physical trading floor presence while maintaining exchange control through algorithmic allocation.
3Quantity of substance
If cumulative selection value threshold is lowered, then more market participants can be authorized, but market quality and liquidity may deteriorate
Solution Approach 1:
The system implements dynamics by making the cumulative selection value threshold adjustable and adaptive rather than fixed. The threshold can be dynamically modified based on market conditions, participant performance, and liquidity requirements. This allows the exchange to authorize more participants when market conditions are favorable while maintaining higher standards when quality is paramount, balancing quantity and reliability.
Data Source
AI summary
A system and method of allocating rights for quoting issues on a trading facility such as an exchange is described. The method may include providing market participants such as remote market makers with a listing of issues available for remote quote streaming where the available issues are ranked according to predetermined trading parameters. A market participant requests allocations of rights to certain issues and the request is filtered according to a value associated with the ranking of the selected issues. The system includes an issue selection database having a listing of issues available for trading where each issue is ranked based on a trading parameter. An issue selection communication module communicates with the issue selection database and is configured to list available issues and rankings. An issue allocation filter receives a market participant request and compares the selected issues in that request to one or more exchange-based rules.