Electronic Trading System for Principal Broker Intermediation
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Solution Overview
Problem
Electronic trading systems do not adequately support principal/broker trading, as some traders lack the necessary computer equipment or competency to operate workstations, and existing methods for communication between principals and brokers are inefficient.
Innovation Solution
The development of electronic trading systems that include workstations for presenting trading information, a processor for controlling trades, and a database to manage principal/broker relationships, allowing for designated trading commands and anonymous trading configurations, enabling traders to operate within defined limitations and anonymously.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If electronic trading systems require direct workstation operation, then trading speed and efficiency are improved, but accessibility and ease of operation deteriorate for traders lacking computer equipment or competency
Solution Approach 1:
The patent introduces a broker trader as an intermediary who operates the electronic trading system workstation on behalf of principal traders. The broker receives trading commands from the principal via communication devices (telephone, instant messaging, email) and executes them through the electronic trading system, thereby enabling principals without computer equipment or competency to participate in electronic trading while maintaining trading efficiency
Solution Approach 2:
The patent segments the trading function into two distinct roles: the principal trader who provides trading decisions and the broker trader who operates the electronic system. This segmentation allows each party to perform their specialized function - the principal focuses on trading strategy while the broker handles system operation, thus resolving the contradiction between productivity and ease of operation
2Ease of operation
If verbal or electronic communication methods are used for principal/broker trading, then accessibility is improved, but information loss and communication efficiency deteriorate
Solution Approach 1:
The patent replaces traditional verbal communication (telephone) with electronic communication methods (instant messaging, email, electronic messaging systems) for transmitting trading commands between principals and brokers. This substitution reduces information loss by providing written, searchable, and verifiable communication records while maintaining accessibility for traders without workstation access
Solution Approach 2:
The patent implements confirmation mechanisms where the broker trader confirms receipt and execution of trading commands from the principal. This feedback loop ensures communication accuracy by verifying that the intended trading instructions were correctly received and executed, thereby reducing information loss in the communication process
3Productivity
If broker traders have full trading command authority, then productivity is improved, but reliability and risk control deteriorate due to lack of limitations
Solution Approach 1:
The patent implements dynamic limitation parameters for broker traders that can be adjusted based on the principal's risk tolerance and trading preferences. The system allows configuration of various limitation types (credit limits, position limits, instrument restrictions) that can be modified in real-time, thus maintaining productivity while ensuring reliability through adaptive risk control
Solution Approach 2:
The patent requires that trading limitations be established in advance before the broker begins executing trades. The system pre-configures credit limits, position limits, and other constraints that automatically apply to all trading commands, preventing excessive risk-taking while allowing the broker to operate efficiently within the predefined boundaries
4Loss of information
If trader identities are disclosed in electronic trading system, then transparency is improved, but anonymity and security deteriorate for principal/broker relationships
Solution Approach 1:
The patent uses the broker trader as an intermediary who shields the principal's identity from the electronic trading system and other traders. The broker operates the workstation and interacts with the system on behalf of the principal, thereby maintaining the principal's anonymity while still enabling full participation in the electronic trading system
Solution Approach 2:
The patent implements selective anonymity where the degree of identity disclosure varies by context. The principal remains anonymous to other traders and the market, but the broker has full knowledge of the principal's identity and trading preferences. This local differentiation of information quality allows transparency where needed (between principal and broker) while maintaining security and anonymity where required (in the broader trading system)
Data Source
AI summary
Electronic trading systems and methods which facilitate principal/broker trading are provided. In a first aspect of the invention, a database relating to trading participants in the trading system is designed to indicate which traders utilize a principal/broker relationship and what, if any, limitations are placed on the activity of the broker, trading commands submitted by the broker, and counterparties in a transaction with the broker. In another aspect of the invention, trading commands and executed trades involving principals/brokers may be presented to other traders using special designations. The ability to enter certain trading commands by, and in response to, brokers may be limited. In a further aspect of the invention, anonymous trading features may prevent traders from knowing whether another trader is a broker or principal, may restrict traders from being able to block trading with brokers, and may permit brokers to configure anonymous trading parameters.