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Marketmakers with password authorization, click
here for Marketmaker Toolkit Tour.
The BarterSecurities system provides a toolkit which allows marketmakers to
- measure the attractiveness of any incoming barter order,
- specify how aggressively or passively to respond to it, either automatically or manually, using customized decision rules, and
- isolate the profit and loss impact of each decision rule on a real-time basis.
For example, attractive orders might have the dollar amounts of the buy- and
sell- sides almost equal, with stocks that exhibit a close industry match
and high liquidity. A marketmaker could choose to show an automatic offer
for these types of orders at the corresponding National Best Bid and Offer
(NBBO) price reduced by 20% of the NBBO spread, for the current NBBO size.
(A marketmaker response to a barter order is referred to as an offer,
although both a single-stock bid and a single-stock offer are implied.)
To characterize incoming orders, marketmakers define trading decision rules,
which can be activated or disabled at any time. A rule is the link between
the market characteristics of an order and the marketmakers response to it.
The characteristics of the order are tested by conditions which a
marketmaker defines. The conditions are constraints on characteristics of
the barter order such as (1) closeness of the buy-side and sell-side dollar
amounts, (2) industry closeness of the two legs, (3) volumes, (4) market
capitalizations, (5) symbol inclusion on a user-defined list, etc.
If all of the conditions in a rule are satisfied by an incoming barter
order, the offer prices and offer sizes that the marketmaker has associated
with the rule (price and size tiers) are automatically displayed on the
BarterSecurities order book for that particular barter order. The price
and size tiers may be expressed in terms of the current NBBO price and size,
and multiple offers of various price/size combinations can be generated.
Additionally, the tool kit can be used to alert marketmakers to those barter
orders to which they desire to provide manual responses. For example, a
marketmaker may use the toolkit to be alerted if an order to barter for at
least 10,000 shares of IBM is entered into the system, so that the
marketmaker can evaluate the particular barter order and, if desired, can
provide a manual response. As another example, individual marketmakers who
trade a small group of, say, 30 stocks can use the toolkit to alert them to
give a manual response whenever the securities of a barter order fall within
their pre-designated symbol list.
The marketmaker toolkit provides extensive reporting capabilities.
Trade Tickers list individual trades from a Data Source that the marketmaker
defines. Thus, a marketmaker could report all trades within a certain
symbol list, or all trades invoked by a certain trading decision rule.
Position and P&L Reports show cumulative totals of share inventories and
profit/loss associated with a specified data source and according to a
partitioning (e.g., symbols or trading decision rules) that the marketmaker
specifies. Accordingly, marketmakers can monitor on a real-time basis the
profit and loss impact of the decision rules and the price/size tiers that
they create.
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