When a member wants to trade a particular stock and the size of his order is larger than what he can easily execute at the stock exchanges, he will go to the website and enter a request for quote (RFQ) and broadcast it to the entire website or his private group of members.

For example, a mutual fund trader wants to sell 100,000 shares of IBM so he enters “IBM 100,000.”  He chooses to only broadcast his RFQ to members of his private group.  The following is displayed to the members of his group: 

IBM 100,000

Note that the RFQ does not indicate if the member is buying or selling or his identity.  It only states that there is a four star member that desires to receive 100,000 share buy and sell quotes of IBM from other members.  Members will not know from what group the RFQ originated.  They will only know that it originated from another member.  The website will maintain a rating of each member based on his prior behavior with the website similar to EBAY.  Four stars indicate between 60-80 percent of the time in the past this member accepted at least one quote offered to him associated with the RFQs he advertised. If a member advertises a lot and fails to trade he will receive a low star rating.

Members will respond to an RFQ by manually clicking on it and entering a limit order or responding automatically by computer. We anticipate that black boxes of market markers and high frequency traders’ computers will automatically construct quotes when their systems receive RFQs.

When a member enters a limit order into the website it is then sent to the member that requested the quote and placed into his private order book. The advertising member may accept or ignore any quote offered to him.

The website provides its members two types of limit orders:

Smart Limit Order - This order type allows a member to peg his limit order at a fixed distance (number of pennies) above or below the NBBO and if his order executes, he has the option to flip the acquired position back into the market down to or up to the net price of the trade for instant profits. (patented)

Example: IBM national best bid price is $150.00 with 5,000 shares displayed and 5,000 shares displayed at $149.90

A market maker member’s computer system receives “IBM 100,000” RFQ from the website through a direct connection.  His system’s black box immediately generates a 100,000 buy quote pegged at 20 cents below the NBBO.  The quote is preprogrammed to attempt to liquidate itself if it is executed (patented). This limit order (Buy 100,000 IBM, Peg $.20 Below Bid, Limit Price $149.80) is entered and then posted on the advertising member’s desktop for consideration.

IBM	Top of Book
Price	Bid Size	Price	Offer Size
$150.00	5,000	$150.01		7,000
$149.90	5,000
$149.80	100,000

If the member clicks on the “$149.80 100,000” the website will match the two orders, assign a random time period up to 100 milliseconds, scan the national best bid (NBB) for that time period to check for selling of IBM in any market.  If no selling is found during the time period, the pair of orders is executed. Simultaneously once an execution occurs, a sell marketable limit order is entered to sell 100,000 at $149.80 in behalf of the liquidity providing member (patented) to all the market centers of the national market system.  Currently if a block order fills below the market any fills acquired in the open market are credited to the liquidity taker not the liquidity provider.

Not only can these quotes be pegged to national best bid and offer (NBBO) but also to the number of shares offered at different price levels.  Pegging against displayed liquidity is a new concept.

The possibility to buy below or sell above the market with the additional benefit of flipping the position back into the market for instant profits are strong incentives for liquidity providers to make quotes to those that request them.

Hide Side Limit Order – This patented limit order type is designed for investors.  It can be pegged at the NBBO with a limit price or pegged at a number of pennies above or below the NBBO.  This order type is designed to be advertised in the market and at the same time not leak trading interest.  With this order type and the use of RFQs, two parties can negotiate price, quantity and name of security without either party giving up information that can be gamed. This limit order type is a game changer. Billion dollar trades can be negotiated with this market structure innovation.

When this order type is entered into the website, to protect the order from being gamed, a mirror image of the order is sent along with the real order to the member requesting the quote. The decoy order is always opposite in side and opposite in price in relationship to the NBBO.  For example IBM bid is $150.00 and offer is $150.01. If a member enters a buy order and pegs it at $.10 cents below the best bid with a limit price of $149.90, a second mirror order is generated at $.10 above the best offer at $150.11.  Below is an example of what would be displayed on the screen of the RFQ adverting member:

IBM	Top of Book
Price	Bid Size	Price	Offer Size
149.90*	100,000	150.11*	100,000

Both orders are marked with asterisk indicating the “Hide Side” order type.  The member receiving the quote will not know which order is executable and must attempt to trade against either of the orders to find out.  This offers members a new way to show the size of their orders.  Minimum fill requirement can be used to prevent pinging.  This order type is designed for investors (naturals) to show size.   Note that members can name their price and are not confined to making bid and offers that are priced at the NBBO.  This will allow investors the ability to buy block sized orders at prices below the NBBO.  Having investors participate directly in the price discovery process as market makers would have prevented the Flash Crash of May 6, 2010.

The website will operate an almost zero latency trading platform which will broadcast quotes live to members’ order books.  This is very similar to the way data feeds are fed into order management systems today.  One big difference, quotes will only be viewed by those that request them.

This gives members the ability to generate the transaction cost of a trade on their screen before pulling the trigger on a trade.  Bid and offer quotes can be competitively generated on demand based on an order’s size.