[This message was posted by John Harris of BondMart Technologies, Inc. <[email protected]> to the "General Q/A" discussion forum at http://fixprotocol.org/discuss/22. You can reply to it on-line at http://fixprotocol.org/discuss/read/7d1a59ed - PLEASE DO NOT REPLY BY MAIL.]
The example I gave, Ryan, was qualified by "[p]resuming the rules of the exchange permit such behavior" and "if [the broker] obtains agreement from [buyer and seller]," so, agreed, it may not be possible to effect a cross, the consent of parties is required, and the rules of an exchange (or other regulatory body) may apply. I submit this to be a rigorous definition of a cross trade: A cross is a trade effected by prior arrangement between buyer(s) and seller(s), on the basis of a dynamic reference price agreed upon by them in advance, through the agency of a third party acting in the capacity of broker or riskless principal and who impartially establishes the actual execution price. I further submit that a trade not meeting this exact definition is something other than a cross. > > If he obtains agreement from both, he will effect the trade. > > That might not necessarily be possible. In addition to consent from the > parties, as Hanno said, the Cross order may be submitted to an exchange, > whose rules may apply and may affect how, or if, the cross is executed. > > It is possible that a cross could be declined by the exchange. > > It is also possible that the exchange could step into the middle of the > proposed cross and trade some or all of one side, and leave the > remainder of the other leg on the book, or cancel it. > > A cross may also involve an agreed trade between the broker's own > proprietary inventory and the client. > > E.g. the book may appear as follows: > > Bid Offer 1000 @ $10.25 1000 @ $10.26 1000 @ $10.24 2000 @ $10.27 1000 @ > $10.23 1000 $ $10.28 > > A client may want to buy a block of 100,000 shares, and may agree to do > it with the broker at $10.27, which is outside the NBBO, but is still > reasonable, especially considering the volume involved and its market > impact. So the broker may send a cross for 100,000 shares at $10.27 to > the exchange. The exchange may respond by matching 1000 shares @ $10.26 > and 2000 shares @ $10.27 from the book with the client leg to buy, and > then matching the remaining 97,000 shares of the client leg to buy with > 97,000 of the broker's leg to sell at $10.27, and then canceling out the > rest of the broker's leg to sell. [You can unsubscribe from this discussion group by sending a message to mailto:[email protected]] --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Financial Information eXchange" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/FIX-Protocol?hl=en -~----------~----~----~----~------~----~------~--~---
