The Design of a Best Execution Market

Abstract

The notion of best execution on securities markets is manifold. Best execution has different meanings to different market participants,therefore, it is difficult to find a unique market structure that meets this requirements for all the participants. Traditional market structures are either static or flexible, meaning that an individual market participant has no influence regarding theconcrete market structure s characteristics, like e. g. the price discovery mechanism, trading frequency or the market transparency. Traditional market structures are either static or flexible, meaning that an individual market participant has no influence regarding theFocussing on customer orientation, we propose a new type of market structure the dynamic market model, where participants individuallychoose the characteristics of the market structure for each transaction they perform. Furthermore, this paper offers an approach to designdynamic market models from scratch. We briefly sketch the necessary steps towards a dynamic market model. Traditional market structures are either static or flexible, meaning that an individual market participant has no influence regarding theFinally, we present AMTRAS; the prototype of an electronic trading system that was conceived and implemented following theaforementioned approach. AMTRAS is an software-agent based bond trading system designed for the need of institutional investors. Itimplements a dynamic market model, a sophisticated product- and partner matching scheme as well as an innovative price discoveryapproach.