Automated Trading System with Deal Code Access Control
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Solution Overview
Problem
Automated trading systems face challenges in enhancing liquidity, particularly in anonymous matching systems, where existing portal approaches do not effectively increase the quality of quotes available to customers and do not provide additional benefits to banks that provide price streams.
Innovation Solution
A system where quotes from institutions are fed into the trading system via an automated trading interface, with deal codes assigned to restrict access and credit limits set to zero for all counterparties except the institution's own customers, allowing prime brokerage customers to access proprietary price streams, thereby increasing liquidity and attractiveness of prime broker services.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If portal systems aggregate prices from multiple liquidity providers through a single interface, then customers gain access to more price sources and improved price quality, but the liquidity of any particular system does not increase and banks providing price streams receive no additional benefit
Solution Approach 1:
The patent merges the portal approach with prime brokerage by integrating multiple liquidity pools into a single system interface. The system combines aggregated prices from multiple sources with prime broker credit mechanisms, allowing customers to access diverse liquidity sources while the prime broker receives compensation for providing access to these pools, thus resolving the contradiction between price quality improvement and system liquidity enhancement
Solution Approach 2:
The prime broker acts as an intermediary between the liquidity pools and customers. The system uses the prime broker to facilitate access to multiple liquidity sources while maintaining controlled credit relationships. The intermediary mechanism allows price aggregation benefits to be realized while the prime broker captures value through credit-based compensation, solving the contradiction by introducing a mediating layer that enables both price quality improvement and system liquidity enhancement
2Quantity of substance
If streaming prices are made available to all counterparties on the system, then liquidity increases for all users, but the institution loses control over who accesses its proprietary prices
Solution Approach 1:
The patent applies local quality by differentiating access rights based on counterparty relationships. The system maintains uniform interface for all users but implements selective access to streaming prices based on credit relationships. Prime broker customers receive proprietary price streams while other counterparties access aggregated market prices, allowing the institution to control information flow while maintaining overall system liquidity through the unified interface
Solution Approach 2:
The system segments the quote stream into different categories: proprietary streaming prices from the institution and aggregated market prices from other sources. The matching system then segments distribution based on counterparty credentials, directing proprietary streams only to authorized prime broker customers while making aggregated prices available more broadly. This segmentation resolves the contradiction by enabling selective access control while preserving overall system liquidity
3Reliability
If credit limits are set to zero for all counterparties except the institution's own customers, then access to streaming prices is restricted to authorized parties, but the system complexity increases due to credit system interactions
Solution Approach 1:
The system implements self-service by allowing the credit system to automatically enforce access controls without manual intervention. When a counterparty attempts to access streaming prices, the system automatically checks credit limits and deal codes, with the credit system itself managing the authorization logic. This self-service mechanism simplifies the interaction between the matching system and credit system, reducing operational complexity while maintaining reliable access control
Data Source
AI summary
An anonymous trading system is configured to receive a price stream from a bank or other institution. The price stream is converted into a quote stream and input into the trading system via an automated trading interface. The quote stream has its own deal code. The deal code credit limits are set so that the only parties that have credit with the deal code are other deal codes of the same institution. At least one of these deal codes represents a prime broker bank and prime broker customers therefore have access to the institution's price stream to the exclusion of other parties trading on the system. A distributor distributes the quotes from the trading system to the prime broker customers' traders, to prime broker customer automated trading interfaces, and to prime broker customer deal feed systems for logging of deal tickets and communication of those deal tickets to back office systems.