From: ichudov@Algebra.COM (Igor Chudov @ home)
Date: Tue, 20 Jan 1998 06:46:29 +0800
To: cypherpunks@www.video-collage.com
Subject: Distributed stock trading system
Message-ID: <199801192238.QAA03188@manifold.algebra.com>
MIME-Version: 1.0
Content-Type: text



I would like to hear your feedback on a project that I have just
thought about.

It is called a Distributed Asset Trading Network. It consists of
Traders and Nodes. They trade Products (asset classes). A Product may
be an Intel share, or a bond, or an option on S&P 500, or whatever. Who
and how defines what the Product unit is is beyond the scope of this
document. 

Each Node in the Network is a clearing corporation that is supposed
to be a legitimate operation. To cover possible liabilities, Nodes can
post [ecash] bonds to each other. They are ultimately liable for all
counterparty defaults in Trades.

Traders are clients of Nodes. They have Accounts. To buy or sell Products,
they place Orders to these Nodes. The Nodes broadcast the Orders and
collect Potential Trades (opposing orders that have not been filled yet).
Nodes may have Policies that require Traders to meet certain requirements,
in order to avoid potential liability. (ie, to sell stock, you have to
have it on your Account, or have enough equity to cover the short sale
liabilities, etc).

The receiving Node has a short period of time (seconds) to decide which
counterparties and which amounts to choose. The sending Node acquires
Locks on the submitted Potential Trades and is liable to produce the
Asset (or Cash) if the positive response comes back within that time
period.

This architecture can create a trading environment that is a) independent
of borders and national laws, at least to some extent and b) eliminates
certain forms of arbitrage, and c) more resistant to denial of service
attacks (??), and possibly eliminates the bid-ask spreads and a whole
lot of highly-paid intermediaries, and c) potentially increases privacy
for transactions.

The technical issues that are open, at the moment, are 1) clock
synchronization, 2) the need for a central authority to clear liability
issues and 3) potential denial of service attacks through acquiring too
many locks (again, maybe with the proper liability agreement, it is not
an issue).

I think that such a system is not all that impossible to develop. Whether
it will, or can be made to, work in the technical and social environment
that we have is another question.

I am curious if something like this has aleready been implemented.

Thank you.


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