Smart Order Router for Anonymous OTC Swap Trading
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Solution Overview
Problem
In the over-the-counter (OTC) derivatives market, traders face challenges in consummating swap transactions anonymously, which limits their ability to achieve best execution without revealing their identity, and there is a lack of systems that provide real-time data and smart order routing logic for directing orders to top market makers.
Innovation Solution
A system that allows users to request quotes anonymously, selects counterparties based on historic performance metrics, and executes transactions by sending buy and sell tickets to a clearing house, while maintaining user anonymity and providing real-time data and smart order routing logic to direct orders to top market makers.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If traders request quotes in the OTC derivatives market, then they can obtain pricing information, but their identity is revealed to counterparties preventing anonymous trading
Solution Approach 1:
The system introduces an intermediary platform that receives quote requests from traders and forwards them to selected counterparties without revealing the trader's identity. The platform acts as a mediator that preserves anonymity while enabling the quote request function, allowing traders to obtain pricing information without exposing their identity to counterparties.
2Measurement precision
If multiple counterparties receive quote requests, then traders can compare prices for best execution, but the system complexity increases
Solution Approach 1:
The system segments the counterparty selection process by dividing counterparties into different groups or categories based on performance metrics. Instead of managing all counterparties uniformly, the system segments them and selects from relevant segments, simplifying the overall system structure while enabling comprehensive price comparison across multiple counterparties.
Solution Approach 2:
The system performs preliminary actions by pre-evaluating and ranking counterparties based on historical performance metrics before receiving quote requests. This preliminary classification allows the system to quickly select appropriate counterparties without complex real-time decision-making, reducing system complexity while maintaining the ability to compare prices effectively.
3Reliability
If the system selects counterparties based on historic performance metrics, then execution quality improves, but data processing requirements increase
Solution Approach 1:
The system performs preliminary evaluation of counterparty performance metrics in advance, calculating historical performance indicators before they are needed for actual trade execution. This pre-computation allows the system to use stored metric values during real-time operations, reducing the data processing load during critical trading moments while maintaining high execution quality based on reliable historical data.
Data Source
AI summary
Methods, systems, and apparatus, including computer programs encoded on computer storage media, for order routing. One of the methods includes receiving a request for quote from a user, the request for quote indicating that the first user is to be anonymous during the negotiation. The method also includes selecting counterparties to receive the request for quote. The method also includes sending the request for quote to the selected counterparties absent revealing the identity of the user. The method also includes receiving prices from the counterparties, each price associated with a counterparty. The method also includes presenting the prices to the user.