Trading Order Disclosure Control via Market Center Routing
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Solution Overview
Problem
Existing electronic trading systems face inefficiencies in processing trading orders, including high transaction costs and inadequate control over disclosure of trading details, due to limitations in routing orders to optimal market centers and managing transaction costs.
Innovation Solution
A system that utilizes a processor and memory to route trading orders to market centers based on determined prices, adjusts prices according to policy, cost, and rebate information, and manages disclosure and transaction costs by internally matching orders and canceling orders to avoid excessive processing times.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If trading orders are routed to multiple market centers, then price optimization is improved, but transaction costs increase
Solution Approach 1:
The system segments the total order quantity and routes different portions to different market centers based on their respective prices and policies. This allows the system to capture price improvements from multiple venues while managing transaction costs through controlled allocation rather than attempting to execute the entire order at a single venue.
Solution Approach 2:
The system dynamically changes routing parameters (allocation ratios, target prices) based on real-time market conditions, price information, and policy parameters from different market centers. This enables optimization of the trade-off between price improvement and transaction cost expenditure.
2Speed
If full order quantity is disclosed to market centers, then execution speed is improved, but trading strategy confidentiality deteriorates
Solution Approach 1:
The system segments the order disclosure by routing different portions of the order to different market centers rather than disclosing the full order quantity to all venues. This maintains execution speed by having multiple venues working simultaneously while protecting confidentiality by limiting each venue's visibility to only its allocated portion.
Solution Approach 2:
The system acts as an intermediary between the trader and multiple market centers, controlling what information is disclosed to each venue. It mediates the information flow by allocating order portions strategically, enabling the trader to benefit from multiple venues without fully exposing the total order size and intent to any single market center.
3Loss of energy
If orders are monitored for extended periods, then transaction cost avoidance is improved, but processing time increases
Solution Approach 1:
The system performs preliminary actions by proactively monitoring order status and proactively canceling orders before transaction costs are incurred. It sets up monitoring mechanisms in advance and executes cancel instructions at predetermined thresholds, avoiding the need for extended passive monitoring while preventing cost accumulation.
Solution Approach 2:
The system implements feedback mechanisms by continuously monitoring order status, processing time, and cost parameters. Based on this feedback, it dynamically adjusts monitoring duration and triggers cancel instructions when optimal thresholds are reached, balancing the trade-off between transaction cost avoidance and processing time efficiency.
Data Source
AI summary
A system for controlling the disclosure of a trading order comprises a memory and a processor. The memory stores disclosure policies associated with market centers. The processor receives a trading order for a trading product that specifies a total quantity of the trading product and a maximum disclosure quantity of the trading product. The trading order is associated with a particular market center. The processor then routes the trading order to the particular market center according to the disclosure policy associated with the particular market center.