Not OP but here's why I think it's a great choice: it's the kind of book you could read many times and still not understand every nuance. There's a joke in the literary world that nobody has ever read it in full. It's monstrously complex and I'm convinced intentionally confusing at points. But it's also beautifully written, and in a way that quietly appeals to technical people.
To give you an example of the type of metaphor you'll come across: a character navigates a pair of S-shaped train tracks in a V2 rocket bunker, which the author compares to both the SS double-lightning bolt and a double-integral. He later links that to the rockets' accelerometer-based integration over the force function to compute distance traveled, and ultimately trigger "brenschluss" (fuel cutoff). Here's a famous excerpt:
That is one meaning of the shape of the tunnels down here in the Mittelwerke. Another may be the ancient rune that stands for the yew tree, or Death. The double integral stood in Etzel Ölsch’s subconscious for the method of finding hidden centers, inertias unknown, as if monoliths had been left for him in the twilight, left behind by some corrupted idea of “Civilization,” in which eagles cast in concrete stand ten meters high at the corners of the stadiums where the people, a corrupted idea of “the People” are gathering, in which birds do not fly, in which imaginary centers far down inside the solid fatality of stone are thought of not as “heart,” “plexus,” “consciousness,” (the voice speaking here grows more ironic, closer to tears which are not all theatre, as the list goes on . . .) “Sanctuary,” “dream of motion,” “cyst of the eternal present,” or “Gravity’s gray eminence among the councils of the living stone.” No, as none of these, but instead a point in space, a point hung precise as the point where burning must end, never launched, never to fall. And what is the specific shape whose center of gravity is the Brennschluss Point? Don’t jump at an infinite number of possible shapes. There’s only one. It is most likely an interface between one order of things and another. There’s a Brennschluss point for every firing site. They still hang up there, all of them, a constellation waiting to have a 13th sign of the Zodiac named for it.
Since the GPS signal is just disciplining a local oscillator, it would have to be a sustained outage before drift starts to really matter. But yeah there is a point where it would make a difference.
> Same day settlement
This one is outside our control for the moment - we partner with a 3rd party for clearing and settlement, and would depend on our subscribers also making the switch to same-day.
Once we get into other asset classes, fast settlement is definitely of interest. Some cool stuff we could do with incorporating settlement instructions and/or counterparty risk constraints as part of the expressive bidding language.
> Very cool market. This feels a lot like multi-leg option execution.
Thanks! And yep, similar but all the way down to the venue/match level, e.g. as opposed to a broker taking on some legging risk to shield the end investor.
> How do you think market makers are going to react to this?
Expanding on Kelly's take - the big thing it does for market makers is allow them to manage momentary risk. When a market maker gets filled on an exchange, they are immediately looking to hedge/offload what they took on which involves a sequence of transactions.
Here, the hedge is baked in. So for example, they may enter an order that looks like "buy and/or sell any mix of these 200 securities, if and only if the net change in risk (e.g. change in exposure across several factors) is within some tolerable distance from 0". So that would look like a traditional bid-ask spread across a series of symbols, but with a global exposure constraint. The key outcome being they can quote larger sizes across symbols safely.
NB: the MM doesn't need to know anything about the composition of the complex order on the other side. On top of that, they may be filling one leg, and a natural or other LP filling another etc..
We raised a series A in 2019 led by Green Visor (who has been excellent btw, and with us from the start)
> it seems like you've been building for ~5 years ... i'm guessing it cost quite a bit to develop
Yep, you're spot on that it's a complex product. The biggest cost has been making it feel for the user like it's not. What that boils down to is an enormous amount of iterative feedback and development w/ the industry. Between that and the regulatory process, a lot of the "cost" has been more duration than cash burn. We've kept things lean from the start in anticipation of that.
> unless you built out all of the components yourself
We've developed the tech in house, with some hands on help from our friends at Imandra mentioned in the OP. On the research piece: that's been happening in the background for many years, and we're definitely building on the shoulders of giants in the worlds of mechanism design, algorithmic game theory, and deep learning. We're lucky to have some great academic advisors involved (like Kevin Leyton-Brown since the early days) as well.
Excellent question! The TL;DR is that substitutability and the ability to manage risk (e.g. execute hedges or constrain factor exposure atomically) can be great for inducing liquidity in the absence of large volume and high turnover.
On substitutability: if you want to sell $2m of some sector basket you wouldn't put in a limit order for $2m in every security (overfill risk). An expressive order can enforce a $2m global constraint across the basket but show full size in each security. When lots of people are doing this, it solves the "ships passing the night" problem where people are looking for offsetting exposure at a high level but can't express anything but single stock orders.
On risk management: some constraints certainly are restrictive, e.g. conjunctive constraints like 'a' AND 'b' AND 'c'. It would be very unlikely that we find the exact opposite of that constraint, so the auction is multilateral: we can stitch together the contra with individual single orders for 'a', 'b', 'c'. Key to the liquidity aspect of this is our objective function: it rewards more aggressive pricing and larger quantities. So the principle here is that by gaining atomicity (and reducing uncertainty) people can be more aggressive on price and qty. This is especially important for liquidity provision: how much larger size could market makers quote if they could automatically hedge new positions they enter into?
All that said, bootstrapping liquidity is the hardest part of any venue launch. We're obsessively focused on making sure we have the right blend of participants trading on different horizons for a healthy pool.
The funny thing about the emergence of HFT is that if you truly only have a hundred or so shares to buy/sell it's quite cheap and easy to do that now. Atomicity and substitutability isn't as important if there's plenty of liquidity relative to the size you're trading.
The harder problem that large traders face is executing blocks and portfolio trades. How do you figure out what your total transaction cost (market impact / cost of liquidity) will be if you're buying 100x the displayed volume? Being able to express where you are flexible (e.g. individual security prices) and aren't flexible (aggregate price, atomicity) helps lock in the uncertainty pre-trade.
So we're actually mostly going after the large scale stuff, more than the small scale.
We're still going through integration and test/simulated trading with initial set of users so nothing public yet. But once we cut over to real cash/equities our volume data will all be published through FINRA's site[0].
No worries, happy to concretize this: the really easy example would be shoes. How much would you pay for just a right shoe or just a left shoe? A lot less than the pair, since you might not be able to find the other shoe in the right size, condition, etc. Same with the seller - they don't want to be stuck trying offload a single left shoe.
In stocks, A might be a company you invested in and B some ETF that you bought as a hedge for A. What if you sell out of A, and then the price of the ETF drops? There's value in being able to liquidate the full position - the single stock plus the hedge - at once.
An ATS is like an exchange, so we match buyers and sellers. And you guessed correctly that the initial users are institutional investors - or more directly their brokers. So initially we'll have institutions creating and sending in "Expressive Bids" to improve their execution performance, and to express trades they currently can't via plain limit orders.
That said, we'd love to get to the point where E-Trade etc. are offering combinatorial bidding to retail traders, with us on the back end.
Couldn't agree more on the mechanism design front. There are so many dimensions to the problem - especially for US equities - that the design becomes quite nuanced and tradeoffs have to be made somewhere or other. The duration aspect of waiting for trades to be matched (and for liquidity to accumulate) is an especially challenging one in fast financial markets.
I'm curious if you've come across OneChronos (upcoming US equities ATS - I'm a founder there along with @lpage; disclaimer). A lot of what you describe is baked in as a goal of our auction design. Most importantly, drawing out liquidity by incentivizing truthful bidding and allowing people to encode things like substitutability. We try to do that by giving people the tools to express their full intent to the venue[1]. Don't wanna get any more salesy than I already have here, but I always like to get points of view from other practitioners.
The hedging scenario you describe is one of the hallmarks of combinatorial auctions[0], which let participants enter bids on packages. (Disclaimer, I'm a founder at OneChronos which is applying these auctions to US equities.) So a market maker can express something like: "fill me for any package that includes `x` gizmos AND `k * x` anti-gizmos simultaneously".
The more powerful and general version of this is: "Buy and sell any mix of products, subject to the total package being neutral across these 10 risk factors I care about."
> You might also want to do more complicated things, like pulling an order in one product if another product moves a lot
This is a key problem in US equities or any market with similar fragmentation. The way we're approaching that is to allow those package bids to also include constraints on "current" market conditions at the moment of the auction. A simple one would be "if the momentary spread between asset A and B is greater than X, don't trade."
There's a protocol being worked on called STIR/SHAKEN to address robocalls [0]. It's more like website / browser certificate PKI than spam filtering. Some of the major US telcos are working toward implementation already.
Does it matter if a robot can build a car? People can build cars.
Of course it matters. A bot can scale to appear as millions of people. So whoever wields the most compelling bots gets a massive force-multiplier for their opinions and objectives. Or more likely, grants that power to the highest bidder.
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