Saturday, June 25, 2011

ECN - 2 core services - quote aggregation^execution

2 core functions of a liquidity venue
Q) quote collection -- including dissemination. Consider a BBS.
Q2) RFQ -- not needed on exchanges.
E) execution

(Most fundamental messages are quotes and orders.)

An exchange offers additional services (such as integrity, credit guarantee...) but most ECNs offer only these 2 core services.

Typically each quote (similar to a limit order) received is assigned a quoteID. Each order must reference an orderID, so the liquidity venue can forward the order to the quote originator. The originator always has the option to reject, even if the quote is advertized as "firm".

Such a liquidity venue typically holds no inventory and takes no position hence zero risk.

Most of these liquidity venues support FIX. They might support another messaging protocol too.

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