Background

One of the major options exchange wanted to improve the trading experience within its Order Book system by adding new order types, so it could remain competitive and attract new order flow. The client chose CTI to help evaluate its order book system and make the experience and process of buying and selling more efficient and less susceptible to manipulation by certain parties. In order to accomplish this, the client needed an application that would not publish prices offered by buyers and sellers as they occurred so that no party could exploit published prices in order to force a trade.

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Goal

Over the course of six months, CTI's team of onshore and offshore design, development and implementation experts met with select users and the client to define requirements and develop an execution plan. The project was broken out into phases that included an iterative approach, which allowed for constant user feedback along each stage of the project resulting in fewer errors and fixes at the end of implementation. 

 

The design and implementation also had to fit into client’s existing infrastructure, have minimal impact to existing functionality and meet the client’s design requirement and coding convention.  Java and Oracle were the main technologies adapted with the assistance of numerous open source tools, such as XML, UML, XSL and XSLT. Eclipse was chosen as the Integrated Development Environment (IDE). The onshore and offshore teams worked with the client in order to provide a seamless project management experience that saved time in the long-run and avoided issues with integrating the application with the existing system. The team ensured that any changes made to the new order book functionality did not impact the client’s proprietary order book system currently in place.

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Solution

The new order types allow users to either buy or sell at a price based on National Best Bid Offer (NBBO). These are similar to existing market orders; however, these orders are not published in the regular order book, thereby avoiding exploitative pricing strategies to force a buy/sell within the market. Thus, the new order system allows users of the options exchange to buy/sell large orders without causing big market disruptions since the size and identity of orders are not revealed. At the same time, it adds liquidity to the market and reduces the bid/ask spread while enabling the market price to move closer to the equilibrium point.

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Impact

The addition of these new order types also enhances order execution opportunities and provides market participants with flexibility in executing transactions that meet the specific requirements of the order type. It allows for additional opportunities for liquidity providers to passively interact with interest on the Order Book system.

 

Overall, this new implementation helps promote just and equitable trading principles by preventing fraudulent and manipulative acts, removing impediments and perfecting the mechanism for a free and open market, which protects investors and the public interest.

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