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General Q/A
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re: Suggestion: mountains of IDs
Shalom Reich / Goldman, Sachs
7 May 2004 9:46AM ET I think the key statement to the problem you are describing is:
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> With order routing systems becoming ever more multi-layered, ....
I think these problems exist because many of the processes we are now using originated in a time when physical delivery was the norm and the industry was trying to reduce the (often painful) process of frequent delivery (especially as trading volumes rose). I believe that is the only reason why we need to know about the order as it routed further and further from us.
Contrast this approach with the one I encountered when working on ATM cash machine systems. When the customer sticks his/her card in an ATM that doesn't belong to the card issuing bank, the link back to the bank may be quite complex - the ATM machine owner bank, a network that the ATM bank belongs to, a clearing network (which may also provide FX services), the network to wich the card issuing bank is connected and (finally) the card issuing bank. Yet the standard approach in this industry is that each pair of parties to a transaction reconcile with one another. This means that the ATM owning bank only needs to know that any card issued by XXX bank should just be routed to my network. The network, in turn, just needs to know that when a card issued by XXX bank arrives forward the transaction to the clearing network etc. etc. If there is any problem with the transaction, each party just deals with its neighbors - the parties that were originally involved in the transaction (from its point of view).
If our industry worked the same way, we would only need to deal with a) our instructing party (the people who told us to do the trade) and b) the executing party (whoever we either did the trade with or who did the trade on our behalf). Again, for settlement we would ONLY deal with the same two parties. This way, we do not need to worry that the executing party actually did half the order against its own account and the other half on the floor of the exchange. We are insulted from these details. The only one who needs to worry about these details is the party that actually split the order - and that is something internal to its own systs/environment.
A bit of a long post . . . :-)
Comments?
Shalom Reich
re: Suggestion: mountains of IDs
Shalom Reich / Goldman, Sachs 7 May 2004 9:46AM ET
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