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Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

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Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#31

Post by anonymouse008 »

lpage wrote: post #8
anonymouse008 wrote: post #6

Earlier quoted context omitted.

Gut reaction: There has to be a lot of additional data gathered at the time of 'intent to purchase or sell' - because otherwise your solution eats away a lot of powerful institutions alpha. And without 'novelly' expressive orders, there's no new place for them to go... that Trillion dollars doesn't just evaporate in today's world.

It's more like ensuring an opportunity to leverage the information that's already being gathered. As it stands, PMs have to construct concrete portfolios because they need to send the trading desk specific instructions on what to buy and sell. The portfolio they ship out for execution is effectively a low dimensional projection of a high dimensional decision process. That process has extensive substitutability (sizin…

Oh yes, I see the problem statement and agree from a PM perspective this is quite good.

That said, there are a lot of people who make good money making inferences from these current concrete dynamics - in some sense, you're just forcing the market to innovate (this is good).

I always like to know who I'm asking to change when building products -- and this one is a very interesting (read: fun and potentially lucrative) set of actors.

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#32

Post by bruceb »

This is part of the reason I come to HN. A detailed post on a problem (and sometime solution) I am unaware of.

A newbie question. I understand how a pair tickets to say the superbowl would be more valuable than a single ticket, people want to go with their friend. Is there a practical example for equities? I will buy 100 shares $FB at $250 only if I can also get 50 shares of $SNAP at $35 at the sametime? If I can't get that combo, I will only pay $240 for $FB?

Is this aimed at equities that have less liquidity?

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#33

Post by xxbondsxx »

bruceb wrote: post #32

This is part of the reason I come to HN. A detailed post on a problem (and sometime solution) I am unaware of. A newbie question. I understand how a pair tickets to say the superbowl would be more valuable than a single ticket, people want to go with their friend. Is there a practical example for equities? I will buy 100 shares $FB at $250 only if I can also get 50 shares of $SNAP at $35 at the sametime? If I can't g…

The founders can answer better, but a lot of traders are not just looking at individual stocks but rather packages of stocks together.

Say you want to invest in the health + tech space, but there's some risk that covid ends and gyms come roaring back. So then you want to minimize the risk by putting some money in the gym industry as well -- getting an entire package of peloton, apple, and 24hourfitness stock is actually worth more to you than the individual stocks on their own.

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#34

Post by lpage »

bruceb wrote: post #32

This is part of the reason I come to HN. A detailed post on a problem (and sometime solution) I am unaware of. A newbie question. I understand how a pair tickets to say the superbowl would be more valuable than a single ticket, people want to go with their friend. Is there a practical example for equities? I will buy 100 shares $FB at $250 only if I can also get 50 shares of $SNAP at $35 at the sametime? If I can't g…

Great question! Complements in capital markets typically aren't as strong as other markets like event tickets. On the complements side, hedges are a good example. Market makers like banks are willing to quote much larger sizes for hedged transactions, e.g., an institution that wants to buy a large block of equity in one company while selling others with similar qualities as "factor hedges." The net notional changing hands is roughly the sum of the parts. Still, there's a big price difference between doing this trade atomically and as a series of transactions where the market maker has to "wear" the risk for some period.

Substitutes in capital markets are ubiquitous. There might be hundreds of candidate hedges in the example above, but given how trading workflows are, there's no way to communicate that amongst market participants. A market maker has no way of knowing if someone wants to buy SNAP (and thus potentially has market-moving information about it) or if they're using it as a hedge for a short position and would substitute something that the market maker wants to gross down on (and offer a more aggressive price because of that). As such, market making is a game of pricing under risk and uncertainty. Combinatorial auctions eliminate much of the uncertainty.

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#37

Post by lpage »

quantum_state wrote: post #35

It is good to see methods routinely used in collateral trade matching found their way to close to real time exchange trade matching … though the former is a problem of a much larger sizes …

The notional values in compression cycles are insane, and we're interested in the post-trade space as well. The optimizations done on the post-trade and funding side aren't combinatorial auctions, resulting in efficiency loss and poses workflow challenges, especially for swap and CDS traders. That said, the opportunity for driving actual portfolio gains and not "just" minimizing counterparty and systemic risk is more significant on the pre-trade side.

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#38

Post by renewiltord »

Do you do only equities or also derivatives?

This is very interesting. Because you run frequent short auctions, there's no strict long-running orderbook here, right? Are you using FIX for your protocol and where are your servers geographically located?

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#39

Post by RandomLensman »

Loved this from the first time I saw it some years back (became part of my example list of innovations out there)! Finally, some advanced auction mechanisms going broader.

From the description above: are you guys then just selectable as an algo/ATS going through through a broker, i.e, there could be a natural "sweep" (bit like algos covering block interest in some cases)? Do you work with some big broker-dealers on integration?

I know you started out with equities, but bond portfolio transitions are (often) a much bigger pain - any plans there? Or issuance, i.e., mix of funding instruments in one go?

Re: Launch HN: OneChronos (YC S16) – Combinatorial auctions market for US equities

#40

Post by lpage »

itaimonster wrote: post #36

Congrats on the launch! This is super interesting. Expressive bidding also opens up opportunities for arbitrage, do you see any potential downsides to this aspect of the market behavior?

Good question! Combinatorial auctions with a uniform clearing price eliminate mechanical arb; there's no opportunity to buy and sell a single trading instrument at different prices. Stat and funding arbs form "outside" of trading venues and they're a good thing that keeps the market efficient. Putting a combinatorial auction in the mix eliminates friction and entry costs for folks providing liquidity (no steep tech costs) and keeps the process competitive.
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