VAT Liquidity Builder for Order Execution
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Solution Overview
Problem
Retail investors face challenges in executing large orders due to high frequency trading, while institutional investors lack incentives to participate with retail investors, leading to liquidity issues and unfavorable trading prices.
Innovation Solution
The Volume Attentive Trade (VAT) Liquidity Builder system aggregates and coordinates retail and institutional orders, prioritizing large orders and maintaining confidentiality to avoid market disruption, using a dynamic platform that incentivizes participants by prioritizing orders based on quantity and price.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If retail investors place large orders on public exchanges, then they can execute trades, but high frequency traders detect and front-run their orders resulting in unfavorable prices
Solution Approach 1:
The patent introduces an intermediary system (the trading platform with hidden order book functionality) that mediates between retail investors and the public exchange. This intermediary allows retail investors to place large orders without exposing them to public scrutiny, thereby preventing high frequency traders from detecting and front-running their orders while still enabling execution.
Solution Approach 2:
The patent segments the order execution process into two distinct phases: a private phase where the order is placed and held in a hidden book, and a public phase where the order is executed on the exchange. This segmentation allows the order to be prepared and protected from detection before being exposed to the public market.
2Object-affected harmful factors
If retail investors split large orders into smaller orders, then they avoid detection by high frequency traders, but they lose preferred trading prices and experience timing issues
Solution Approach 1:
The hidden order book serves as an intermediary that allows retail investors to maintain large order positions without splitting them. The system protects these consolidated orders from detection while managing execution timing and price stability, eliminating the need to fragment orders into smaller pieces.
Solution Approach 2:
The system performs preliminary actions by pre-positioning large orders in the hidden book before public execution. This allows the full order size to be established and protected in advance, enabling the investor to secure preferred trading prices before market conditions change.
3Loss of information
If institutional investors trade on alternative trading systems, then they achieve confidential large size trades, but liquidity is reduced across the market
Solution Approach 1:
The patent merges the benefits of confidential trading (previously available only on alternative trading systems) with the liquidity of public exchanges. By implementing a hidden order book on a public exchange platform, it combines the confidentiality of ATS with the liquidity of public markets, allowing institutional investors to trade large sizes without fragmenting liquidity across multiple venues.
Solution Approach 2:
The system provides universal access to confidential trading capabilities for both retail and institutional investors on a public exchange platform. This multi-functional approach eliminates the need for separate alternative trading systems, consolidating confidential trading functionality within the public exchange infrastructure.
4Productivity
If a centralized system aggregates institutional and retail orders, then liquidity is enhanced, but system complexity increases
Solution Approach 1:
The system creates equipotential conditions by treating institutional and retail orders uniformly within the hidden book, regardless of size or investor type. This standardized approach simplifies the aggregation process by applying the same rules and mechanisms to all orders, reducing the complexity that would arise from managing different order types separately.
Data Source
AI summary
Systems and methods are described for aggregating and filling Volume Attentive Trade (VAT) orders using a VAT Liquidity Builder. As described, in various aspects a first grouping of VAT orders may be aggregated by the VAT Liquidity Builder. A second grouping of VAT orders may also be aggregated by the VAT Liquidity Builder. Each of the VAT orders for the first and second groups may each include a set of VAT rules that define a limit price, a share quantity and a VAT delta. The VAT Liquidity Builder may then generate an effective limit price for each of the first group of VAT orders using the corresponding limit prices and VAT deltas, and generate an execution command to fill a particular VAT order having the largest share quantity from the second group of VAT orders with one or more qualifying VAT orders from the first group.