Exchanges as search engines

Some time ago JP proposed that all systems could be reduced to four aspects or capabilities: syndication, search, fulfillment and collaboration. At the time I thought it an interesting point, but not one that applies to etrading systems. Today I found myself reading Harris chapter 19 on liquidity. Harris characterises liquidity as the object of the bilateral search in which buyers and sellers look for each other. Which reminded me of JP’s point, and prompted the thought that ECNs like Liffe, which are organised as electronic limit order books are indeed search engine. They’re constantly performing a highly constrained search for matching orders.

So let’s have a go at mapping JP’s four pillars to etrading…

• Syndication: market data syndication as per Reuters
• Search: exchange order matching, or systems that reaggregate liquidity fragmented across multiple venues
• Fulfillment: T+2 – what else !
• Collaboration: squawk boxes, IM, Bloomberg chat