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General Q/A
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Re: Cross Order.
John Harris / BondMart Technologies, Inc.
6 May 2009 2:16PM ET 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.
Cross Order. Sridhar Satyanarayan / Deutsche Bank, India 6 May 2009 8:52AM ET Re: Cross Order. John Harris / BondMart Technologies, Inc. 6 May 2009 10:42AM ET Re: Cross Order. Ryan Pierce (FPL Technical Director) / FIX Protocol Ltd. 6 May 2009 12:42PM ET Re: Cross Order.
John Harris / BondMart Technologies, Inc. 6 May 2009 2:16PM ET Re: Cross Order. Scott Atwell / American Century Investments 12 May 2009 8:49AM ET Re: Cross Order. Jay De Young / Chicago Mercantile Exchange 12 May 2009 9:33AM ET Re: Cross Order. John Harris / BondMart Technologies, Inc. 12 May 2009 9:34AM ET
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