The Design and Development of a Financial Cybermarket with a Bundle Trading Mechanism

Abstract:

Fundamental changes are taking place in the world’s financial markets that will challenge stock exchanges. As the twenty-first century approaches, more and more exchanges are adopting automated floorless trading mechanisms. This article outlines an attempt to develop an automated financial cybermarket with a bundle-matching and -execution mechanism. The market matches orders in bundles and provides a price-discovery mechanism. In many real-world situations, value is derived from a combination of assets or resources. The value will be significantly reduced when even one asset or resource is excluded from the bundle. The mechanism can be used to trade financial portfolios as well as a combination of commodities. When used for simple asset trading, the bundle mechanism is, in effect, a generalization of the k-double auction. From a computing point of view, the electronic market is a large-scale distributed computing system. Emerging technologies like Java and distributed objects can be used to create electronic markets that can be accessed universally. The technologies support interactive and dynamic information exchanges between traders and market. Computational issues, such as asynchronous processing, currency control, and scalability, are also addressed.

Key Words and Phrases::

• Bundle trading
• distributed computing
• double auction
• financial markets
• Java

Additional information

Notes on contributors

Ming Fan

MING FAN ([email protected]) is an assistant professor in the Department of Management, University of Notre Dame. He received from the Graduate School of Business, University of Texas at Austin. His areas of research include technologies for financial markets, supply chain management, and large-scale distributed system development based on economic principles.

Jan Stallaert

JAN STALLAERT ([email protected])is an assistant professor in the Graduate School of Business at the University of Texas at Austin. He received his PhD. from the Anderson School of Management at UCLA. His research interests are large-scale system optimization, financial engineering, and supply chain management.

Andrew B. Whinston

ANDREW B. WHINSTON ([email protected]) is the Hugh Cullen Chair Professor of information systems, computer science, and economics, and director of the Center for Research in Electronic Commerce at the University of Texas at Austin. His current research spans various realms of electronic commerce, its emerging technologies, and its impact on business protocols and processes.