Apr

27

Liquidity Builder - a patent portfolio for a system to trade securities more quickly (larger retail orders) at close to the midpoint of the bid-ask spread while eliminating market makers and payment for order flow.

Five key points. First, the brokerage industry relies on payment for order flow from market-maker firms like Citadel Securities. Investors are told that their trades have achieved “price improvement” when a buy order is executed below the ask price or a sell order is executed above the bid price. This “price improvement” may be as small as one-tenth of a cent. However, how often have you experienced displaying your limit order as the best bid or ask and before the other side can hit your limit a market-maker jumps in front to execute a trade often at one-tenth of a cent better than your displayed limit price?

Second, the Liquidity Builder (LB) platform reflects a different view of the trading world. As the order size increases, the task is to minimize the time to execute the entire order at a price close to the midpoint of the bid-ask spread.

Third, contrary to the conventional practice of time priority for limit orders at the same price, LB provides for size priority. The largest order, at a given limit price, is first in line to be executed regardless of the time when it was placed.

Fourth, The LB platform eliminates market-makers and would be a magnet for larger orders and with increased liquidity, the platform becomes more valuable as the number of participants increases.

Fifth, the LB platform is secured by a patent portfolio with wide reaching claims. Those claims include the implementation of a larger-order-first system plus a variable price limit in which the limit price varies depending upon the number of shares traded.

In summary, the retail investors with larger orders would gain the opportunity to quickly complete their entire order at a price close to the midpoint of the bid-ask spread whereas the institutional investors would achieve a price somewhat better than the midpoint of the bid-ask spread. I have had discussions with exchanges and large brokerage firms and they have told me that the LB would work but it would disrupt payment for order flow and their principle of equal treatment (equally disadvantaged?) for all investors. One strategy may be to start with a trading platform solely for institutional trades; prove the concept works, and then expand. Ideas are greatly appreciated. My website is LearningWhatWorks.


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