Entered orders may be executed against one or more existing internal orders, against bids and offers in the traditional markets, against marketmaker's directed responses to an entered order, or against a combination of these. Internal order matching is more complex than for traditional orders because the ratio of buy quantity to sell quantity is held constant, even if an order does not trade in its entirety.

Implied Bids and Offers

An important part of the liquidity in the BarterSecurities system is what is known as "Implied", or "Virtual" Bids and Offers. Consider the two orders in Table 1:

Table 1 Order #1 Order #2 Security A Buy 1000 Security B Sell 1000 Buy 1000 Security C Sell 1000 Overall Dollar Limit Pay up to $2,000 Pay up to $1,000

(Note that the limit prices for each order is in the form of an overall debt/credit to the trader rather than in the form of individual stock prices. To learn more about these types of order limits click Limit and Market Orders .)

Taken together, security B nets out and the orders in Table 1 are equivalent to:

    Buy 1000 A / Sell 1000 C / PAY up to $3,000.

In other words, the orders in Table 1, taken together, provide an Implied Bid of $3,000 for a barter order to Sell security A and Buy security C.

Now suppose that an order to Sell 1000 A and Buy 1000 C is submitted with a limit to Receive $4,000 (instead of receiving $3,000, which would cause a trade to take place). Then three orders reside in the BarterSecurities system, as shown in Table 2.

Table 2 Order #1 Order #2 Order #3 Security A Buy 1000 Sell 1000 Security B Sell 1000 Buy 1000 Security C Sell 1000 Buy 1000 Overall Dollar Limit Pay $2,000 Pay $1,000 REC $4,000

Now there are three Implied Bids and Offers:

• (Orders #1 + #2)
  Buy 1000 A / Sell 1000 C / PAY up to $3,000

• (Orders #1 + #3)
  Sell 1000 B / Buy 1000 C / REC at least $2,000

• (Orders #2 + #3)
  Sell 1000 A / Buy 1000 B / REC at least $3,000.

Note that as new orders are added to the system, the number of implied bids and offers can increase as fast as geometrically if the incoming orders involve many of the same securities.

Matching Partial Orders

While internal order matching may involve multiple parties, some orders may have to be only partially filled to effect a trade. For example, consider the barter orders in Table 3, without regard for applicable limit prices:

Table 3 Order #1 Order #2 Order #3 Order #4 Order #5 Security A Sell 200 Buy 400 Sell 300 Buy 300 Security B Buy 400 Sell 400 Security C Buy 200 Sell 200 Security D Buy 200 Sell 300

Within the BarterSecurities model an order can be executed in part only if both legs are filled on a prorata basis. Therefore, orders #1 and #2 cannot directly be used to effect a trade in Security B (even though they represent a buy and a sell of 400 shares of B) because Security A cannot be matched in a proportional way to both orders.

However, the BarterSecurities system, using a patent-pending methodology, computes that a combination of partial fills leads to matched trades for each security. In Table 2 below the Fill Ratio is the fraction of each order that is traded. For each respective order, it is multiplied by the delivered buy and sell amounts in Table 1 to generate the executed buy and sell amounts in Table 2. In the rightmost column of the Table 2, the traded securities are totaled and are seen to net out to zero for each security.

Table 4 Order #1 Order #2 Order #3 Order #4 Order #5 Net Amt. Fill Ratio 1/2 1/2 1 1 2/3 Security A Sell 100 Buy 200 Sell 300 Buy 200 -0- Security B Buy 200 Sell 200 -0- Security C Buy 200 Sell 200 -0- Security D Buy 200 Sell 200 -0-

National Markets and Marketmaker Responses

The liquidity of the internal matching system is enhanced by exploiting the bids and offers for individual securities that reside in the traditional markets. That is, a NYSE or Nasdaq offer at the right price to sell 200 shares of Security A could be combined with the original Orders #1 and #2 in Table 1 to complete a three-way trade.

Notwithstanding the richness of the internal order matching capability, many orders will be executed against marketmakers who make a directed response to an order. Although it is infeasible for marketmakers to post continuous bids and offers for two-dimensional orders as they do for traditional orders, the BarterSecurities system provides them with a toolkit that they can use to deliver automatic, instantaneous responses to orders according to the risk characteristics of the order (e.g., industry closeness of the buy- and sell-side stocks, stock liquidity, etc.) Accordingly, a Limit Order Book for any barter order can be populated for trading in real-time.