Imported from previous forum
Hi ,
Could someone please let me know what is Cross Order. Does it by any means specify a Cross Currency Trade, Wherein Client in US buys a Stock in LSE and Settles the same in USD with certain Exchange Rate?
Thanks
Sridhar
No, a cross involves a simultaneous trade between two orders. You enter both orders in a single message (NewOrderCross). Often there are a number of regulatory rules around such orders in order to prevent market abuse, e.g. having to expose them to the entire market for a number of seconds to allow price improvement.
Hi ,
Could someone please let me know what is Cross Order. Does it by any
means specify a Cross Currency Trade, Wherein Client in US buys a Stock
in LSE and Settles the same in USD with certain Exchange Rate?Thanks Sridhar
[ original email was from John Harris - john.harris@bondmart.com ]
From a business perspective, what distinguishes a “cross” from regular transaction is that the orders are matched at an externally-sourced price, by prior agreement. That is, a cross differs from an ordinary trade by the method of price agreement.
Physical-world example:
A broker has in hand at the same time a buyer and seller of XYZ stock, which happens to be listed on NYSE. Presuming the rules of the exchange permit such behavior, he could say to each of the buyer and seller:
“XYZ is bid at 25, offered at 26 on the exchange. I am in touch with a buyer (seller) in the size you wish to sell (buy). Rather than introducing your orders to the exchange, I can facilitate a trade between you at the mid-point between the bid and offer, or $25.50. Shall I do that?”
If he obtains agreement from both, he will effect the trade.
No, a cross involves a simultaneous trade between two orders. You enter
both orders in a single message (NewOrderCross). Often there are a
number of regulatory rules around such orders in order to prevent market
abuse, e.g. having to expose them to the entire market for a number of
seconds to allow price improvement.Hi ,
Could someone please let me know what is Cross Order. Does it by any
means specify a Cross Currency Trade, Wherein Client in US buys a
Stock in LSE and Settles the same in USD with certain Exchange Rate?Thanks Sridhar
[ original email was from Ryan Pierce (FPL Technical Director) - ryan.pierce@fixprotocol.org ]
> 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.
[ original email was from John Harris - john.harris@bondmart.com ]
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 $ $10.28A 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.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade which is sent by buyside to the sellside were the sellside will try to match the order internally with in their inventory and if the order matches then he will execute this internally and will not send to exchange.
In other case if the order parameter are not matching with the internal orders then the sellside firm will send the order to exchange.
Correct me if i am wrong.
Regards,
Girish
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 $ $10.28A 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.
I have a different view and would call what you describe “internalization”. The definition you give is confusing for me as it does not seem to fit with the way it is used by FIX. I thought that cross trades were when both sides of a trade come from a single submitter. That would only fit if the sellside internally “matches” two orders and then sends both sides to an exchange for execution. In this case the sellside is the single submitter.
FIX provides messages NewOrderSingle and NewOrderCross and I see the difference on the input side (providing one or two sides) and not on the execution side (match internally or forward to an exchange).
NewOrderCross allows to send in both sides within a single message, i.e. you provide a potential match. Regulatory rules for exchanges might require the exchange to make this public before executing it so that others can step in. If nobody steps in (no other qualifying orders), the cross can be executed as provided. Wouldn’t the buyside typically only send in one side (using NewOrderSingle), asking the sellside to look for the best execution? In that sense, the buyside cannot “send in a cross trade”, it can only send in an order and it is the sellside that makes this into a cross trade when it comes up with the other side (and sends this to an exchange).
Regards,
Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade which is
sent by buyside to the sellside were the sellside will try to match the
order internally with in their inventory and if the order matches then
he will execute this internally and will not send to exchange. In other
case if the order parameter are not matching with the internal orders
then the sellside firm will send the order to exchange.Correct me if i am wrong.
Regards, Girish
Hanno,
Cross trade doesnot only refer to the trade which are subimitted by single buy side, the orders will come from different buyside side firm and then it get internally matched with the sell side hub, if this matched then the trade will get executed with out reporting to exchange.
For example, If A,B,C,D are the buy side firm using E as their sellside firm for executing the orders then A may send a buy order which matches with the sell order of B, so in this phase the E sellside broker matches this order internally and send the ER to both the counter parties.
Regards,
Girish
I have a different view and would call what you describe
“internalization”. The definition you give is confusing for me as it
does not seem to fit with the way it is used by FIX. I thought that
cross trades were when both sides of a trade come from a single
submitter. That would only fit if the sellside internally “matches” two
orders and then sends both sides to an exchange for execution. In this
case the sellside is the single submitter.FIX provides messages NewOrderSingle and NewOrderCross and I see the
difference on the input side (providing one or two sides) and not on the
execution side (match internally or forward to an exchange).NewOrderCross allows to send in both sides within a single message, i.e.
you provide a potential match. Regulatory rules for exchanges might
require the exchange to make this public before executing it so that
others can step in. If nobody steps in (no other qualifying orders), the
cross can be executed as provided. Wouldn’t the buyside typically only
send in one side (using NewOrderSingle), asking the sellside to look for
the best execution? In that sense, the buyside cannot “send in a cross
trade”, it can only send in an order and it is the sellside that makes
this into a cross trade when it comes up with the other side (and sends
this to an exchange).Regards, Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade which
is sent by buyside to the sellside were the sellside will try to match
the order internally with in their inventory and if the order matches
then he will execute this internally and will not send to exchange. In
other case if the order parameter are not matching with the internal
orders then the sellside firm will send the order to exchange.Correct me if i am wrong.
Regards, Girish
Girish,
I believe Hanno’s definition of a “Cross Order” is correct (a single firm’s desire to cross two sides of their own order), and that what you are describing is a “crossing facility” (or “internalization”). I would expect users of such would simply send New Order - Single messages for their individual orders (and may designate that they want to access or participate in the crossing service via attributes on the New Order Single message).
Hanno,
Cross trade doesnot only refer to the trade which are subimitted by
single buy side, the orders will come from different buyside side firm
and then it get internally matched with the sell side hub, if this
matched then the trade will get executed with out reporting to exchange.For example, If A,B,C,D are the buy side firm using E as their sellside
firm for executing the orders then A may send a buy order which matches
with the sell order of B, so in this phase the E sellside broker matches
this order internally and send the ER to both the counter parties.Regards, Girish
I have a different view and would call what you describe
“internalization”. The definition you give is confusing for me as it
does not seem to fit with the way it is used by FIX. I thought that
cross trades were when both sides of a trade come from a single
submitter. That would only fit if the sellside internally “matches”
two orders and then sends both sides to an exchange for execution. In
this case the sellside is the single submitter.FIX provides messages NewOrderSingle and NewOrderCross and I see the
difference on the input side (providing one or two sides) and not on
the execution side (match internally or forward to an exchange).NewOrderCross allows to send in both sides within a single message,
i.e. you provide a potential match. Regulatory rules for exchanges
might require the exchange to make this public before executing it so
that others can step in. If nobody steps in (no other qualifying
orders), the cross can be executed as provided. Wouldn’t the buyside
typically only send in one side (using NewOrderSingle), asking the
sellside to look for the best execution? In that sense, the buyside
cannot “send in a cross trade”, it can only send in an order and it is
the sellside that makes this into a cross trade when it comes up with
the other side (and sends this to an exchange).Regards, Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade which
is sent by buyside to the sellside were the sellside will try to
match the order internally with in their inventory and if the order
matches then he will execute this internally and will not send to
exchange. In other case if the order parameter are not matching with
the internal orders then the sellside firm will send the order to
exchange.Correct me if i am wrong.
Regards, Girish
[ original email was from Greg Wood - gregjwood@hotmail.com ]
I think that the term “cross” has changed slightly over the years depending on where it is being used.
I agree with Scott and Hanno - a cross is technically something that is arranged off-exchange and then reported to the exchange in a single message detailing both sides of the trade. This is still very much the case for derivatives exchanges such as Eurex where cross are only permitted if they are exposed to the general market place for 5 seconds or so.
However to Girish’s point, in US equities the term has become used in a much more looser manner to mean a trade that is completed outside of an exchange via an ECN or other crossing network such as a dark pool, things that don’t exist in futures markets. In this case a New Order - Single is placed to trade with other counterparties within the crossing network, including a broker/dealers proprietary desk that might act as a market maker trading from its own inventory or as a block facilitator. A client can choose to cross internally or just use functionality like smart order routing to trade through a single connection and find the best execution on exchange or off.
If I remember from my Series 55, a trade from a crossing network is reported via a post trade facility like TRF which is quite different from the sort of cross report that an exchange like Eurex requires for an off-exchange trade.
Credit Suisse calls its dark pool “Crossfinder”, but we’re not using Cross Orders from clients …
Regards,
- Greg
Girish,
I believe Hanno’s definition of a “Cross Order” is correct (a single
firm’s desire to cross two sides of their own order), and that what you
are describing is a “crossing facility” (or “internalization”). I would
expect users of such would simply send New Order - Single messages for
their individual orders (and may designate that they want to access or
participate in the crossing service via attributes on the New Order
Single message).Hanno,
Cross trade doesnot only refer to the trade which are subimitted by
single buy side, the orders will come from different buyside side firm
and then it get internally matched with the sell side hub, if this
matched then the trade will get executed with out reporting to
exchange.For example, If A,B,C,D are the buy side firm using E as their
sellside firm for executing the orders then A may send a buy order
which matches with the sell order of B, so in this phase the E
sellside broker matches this order internally and send the ER to both
the counter parties.Regards, Girish
I have a different view and would call what you describe
“internalization”. The definition you give is confusing for me as it
does not seem to fit with the way it is used by FIX. I thought that
cross trades were when both sides of a trade come from a single
submitter. That would only fit if the sellside internally “matches”
two orders and then sends both sides to an exchange for execution.
In this case the sellside is the single submitter.FIX provides messages NewOrderSingle and NewOrderCross and I see the
difference on the input side (providing one or two sides) and not on
the execution side (match internally or forward to an exchange).NewOrderCross allows to send in both sides within a single message,
i.e. you provide a potential match. Regulatory rules for exchanges
might require the exchange to make this public before executing
it so that others can step in. If nobody steps in (no other
qualifying orders), the cross can be executed as provided.
Wouldn’t the buyside typically only send in one side (using
NewOrderSingle), asking the sellside to look for the best
execution? In that sense, the buyside cannot “send in a cross
trade”, it can only send in an order and it is the sellside
that makes this into a cross trade when it comes up with the
other side (and sends this to an exchange).Regards, Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade
which is sent by buyside to the sellside were the sellside will
try to match the order internally with in their inventory and if
the order matches then he will execute this internally and will
not send to exchange. In other case if the order parameter are not
matching with the internal orders then the sellside firm will send
the order to exchange.Correct me if i am wrong.
Regards, Girish
While the meaning and usage of the term “Cross Order” could be debated, (even though I too agree with Scott and Hanno) in terms of messaging, the “NewOderCross” message is structured such that you know both parties. For an order that may be subject to off-exchange internal processing, you won’t know ahead of time where (or with what other party) the order will match, so in that case - even subject to “internal crossing”, the proper message is NewOrderSingle.
I think that the term “cross” has changed slightly over the years
depending on where it is being used.I agree with Scott and Hanno - a cross is technically something that
is arranged off-exchange and then reported to the exchange in a single
message detailing both sides of the trade. This is still very much the
case for derivatives exchanges such as Eurex where cross are only
permitted if they are exposed to the general market place for 5
seconds or so.However to Girish’s point, in US equities the term has become used in a
much more looser manner to mean a trade that is completed outside of an
exchange via an ECN or other crossing network such as a dark pool,
things that don’t exist in futures markets. In this case a New Order -
Single is placed to trade with other counterparties within the crossing
network, including a broker/dealers proprietary desk that might act as a
market maker trading from its own inventory or as a block facilitator. A
client can choose to cross internally or just use functionality like
smart order routing to trade through a single connection and find the
best execution on exchange or off.If I remember from my Series 55, a trade from a crossing network is
reported via a post trade facility like TRF which is quite different
from the sort of cross report that an exchange like Eurex requires for
an off-exchange trade.Credit Suisse calls its dark pool “Crossfinder”, but we’re not using
Cross Orders from clients …Regards,
- Greg
Girish,
I believe Hanno’s definition of a “Cross Order” is correct (a single
firm’s desire to cross two sides of their own order), and that what
you are describing is a “crossing facility” (or “internalization”). I
would expect users of such would simply send New Order - Single
messages for their individual orders (and may designate that they want
to access or participate in the crossing service via attributes on the
New Order Single message).Hanno,
Cross trade doesnot only refer to the trade which are subimitted by
single buy side, the orders will come from different buyside side
firm and then it get internally matched with the sell side hub, if
this matched then the trade will get executed with out reporting to
exchange.For example, If A,B,C,D are the buy side firm using E as their
sellside firm for executing the orders then A may send a buy order
which matches with the sell order of B, so in this phase the E
sellside broker matches this order internally and send the ER to
both the counter parties.Regards, Girish
I have a different view and would call what you describe
“internalization”. The definition you give is confusing for me as
it does not seem to fit with the way it is used by FIX. I thought
that cross trades were when both sides of a trade come from a
single submitter. That would only fit if the sellside internally
“matches” two orders and then sends both sides to an exchange for
execution. In this case the sellside is the single submitter.FIX provides messages NewOrderSingle and NewOrderCross and I see
the difference on the input side (providing one or two sides) and
not on the execution side (match internally or forward to an
exchange).NewOrderCross allows to send in both sides within a single
message,
i.e. you provide a potential match. Regulatory rules for exchanges
might require the exchange to make this public before
executing it so that others can step in. If nobody steps in
(no other qualifying orders), the cross can be executed as
provided. Wouldn’t the buyside typically only send in one
side (using NewOrderSingle), asking the sellside to look for
the best execution? In that sense, the buyside cannot “send
in a cross trade”, it can only send in an order and it is the
sellside that makes this into a cross trade when it comes up
with the other side (and sends this to an exchange).Regards, Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade
which is sent by buyside to the sellside were the sellside will
try to match the order internally with in their inventory and if
the order matches then he will execute this internally and will
not send to exchange. In other case if the order parameter are
not matching with the internal orders then the sellside firm
will send the order to exchange.Correct me if i am wrong.
Regards, Girish
[ original email was from John Harris - john.harris@bondmart.com ]
Gentlemen,
When I became a registered representative of Shearson Lehman Hutton in 1988, the FIX Protocol did not exist and to my knowledge, neither did electronic order matching. Electronic order routing did exist, however, as did electronic display systems for quotations and trade reports. In that primitive world, however, believe it or not, we did have “cross trades.” A cross is a type of transaction that pre-dates electronic trading, just as “market” and “limit” are types of orders that pre-date electronic trading.
We wrote our customer orders for listed stocks on paper tickets and handed those tickets to a wire clerk, who would send them electronically to an exchange for execution.
The paper tickets had the equivalent of radio buttons and check boxes for mutually exclusive and potentially-additive order parameters and conditions, respectively. A ticket could be marked just one of “Buy,” “Sell,” or “Sell Short.” It could be market just one of “Market” or “Limit.” But, one could designate multiple conditions such as “At the open” and “Do not reduce.” Some conditions were mutually exclusive. A ticket could not be marked both “Fill or Kill” and “Do not reduce,” for example.
Part of what all new brokers had to learn was what were allowable order parameters and what weren’t.
One of the options on the ticket was “Cross.” One would never hand a wire clerk a single Cross ticket. Doing so would be as non-sensical as handing the wire clerk a ticket without a symbol or quantity.
Cross tickets were always conveyed in pairs, one representing the buyer’s interest and the other the seller’s interest. That is because cross trades were always pre-arranged, off-exchange trades, using exchange prices for reference (because the broker was still responsible for ensuring that the execution price was reasonable in relation to prevailing market conditions).
Several days ago I provided a definition of a cross trade, as follows:
+++++++++++++++
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 assert that this definition is rigorous and that any transaction not fitting the definition is something other than a cross.
We are free to call pears “apples” and leopards “lions,” but that does not make them so. Yes, the meanings of terms can change over time and terms can become imbued with new meaning.
I am well aware that exchanges and routing networks have come to use the term “cross” to describe all manner of order types and execution arrangements, but I assert that they do so either out of ignorance, sloppiness, or a willful intent to confuse or deceive.
Hanno is right, Girish, that your example amounts to a type of internalization protocol. That is, before exposing a received order to the market at large, the DEALER - not broker - seeks to match the order against others he holds. (Brokers acting as such do not have inventories.) Such an execution framework contains elements of a cross (as I defined above).
We go down a slippery and potentially dangerous slope if we allow ourselves to be less than rigorous in our use of trade language.
For example, a cross is a form of pre-arranged trade. It happens to be an ethical and legal form of pre-arranged trade (though may violate the rules of some exchanges). Other forms of pre-arranged trades are neither ethical nor legal.
Markets would be far less efficient, to the detriment of all, if a “market order” could mean anything at all, or a “limit order” could mean anything at all, or if we fail to appreciate the difference between “broker” and “dealer,” or “route” and “match,” or “order” and “trade.”
A cross is as I’ve defined it. Everyone in our business should be able to explain why that definition is rigorous.
Hanno,
Cross trade doesnot only refer to the trade which are subimitted by
single buy side, the orders will come from different buyside side firm
and then it get internally matched with the sell side hub, if this
matched then the trade will get executed with out reporting to exchange.For example, If A,B,C,D are the buy side firm using E as their sellside
firm for executing the orders then A may send a buy order which matches
with the sell order of B, so in this phase the E sellside broker matches
this order internally and send the ER to both the counter parties.Regards, Girish
I have a different view and would call what you describe
“internalization”. The definition you give is confusing for me as it
does not seem to fit with the way it is used by FIX. I thought that
cross trades were when both sides of a trade come from a single
submitter. That would only fit if the sellside internally “matches”
two orders and then sends both sides to an exchange for execution. In
this case the sellside is the single submitter.FIX provides messages NewOrderSingle and NewOrderCross and I see the
difference on the input side (providing one or two sides) and not on
the execution side (match internally or forward to an exchange).NewOrderCross allows to send in both sides within a single message,
i.e. you provide a potential match. Regulatory rules for exchanges
might require the exchange to make this public before executing it so
that others can step in. If nobody steps in (no other qualifying
orders), the cross can be executed as provided. Wouldn’t the buyside
typically only send in one side (using NewOrderSingle), asking the
sellside to look for the best execution? In that sense, the buyside
cannot “send in a cross trade”, it can only send in an order and it is
the sellside that makes this into a cross trade when it comes up with
the other side (and sends this to an exchange).Regards, Hanno.
Guys,
Just to simplfy the answer, Cross trade means, it is the trade which
is sent by buyside to the sellside were the sellside will try to
match the order internally with in their inventory and if the order
matches then he will execute this internally and will not send to
exchange. In other case if the order parameter are not matching with
the internal orders then the sellside firm will send the order to
exchange.Correct me if i am wrong.
Regards, Girish