Board Broker System
What Is a Board Broker System?
The term board broker system alludes to a method for dealing with the liquidity and orderly execution of orders on a commodity exchange or an options exchange. The board broker system comprises of allotting specific commodities or options to members of the exchange. Those members are then responsible for going about as market makers in their assigned commodities.
Albeit well known when they initially originated, most board broker systems have now been replaced by completely automated systems.
How Board Broker Systems Work
A board broker works for a commodity or options exchange. They are responsible for supervising the trading system for a specific set of commodities or options. They must likewise guarantee that trades are led in an orderly fashion. Together, these employees make up what's called the board broker system.
The board broker system is like the system of specialists and market creators utilized in different exchanges, for example, the New York Stock Exchange (NYSE) or the Nasdaq. In the two cases, the goal of the system is to give liquidity to all market participants and to diminish average transaction costs.
While the [designated market makers](/designated-market-producer dmm) (DMMs) of the NYSE might be required to give market-production services to a particular security, board brokers on a commodities exchange are assigned specific commodities. The underlying services gave would basically be something similar, including giving price citations, restricting market volatility, and educating the opening and closing prices regarding the securities or commodities included.
The most renowned illustration of a board broker system was the one utilized by the Chicago Board Options Exchange (CBOE). The exchange offers trading opportunities for securities, for example, options, futures, foreign exchange, exchange-traded funds (ETFs), equities, and different assets.
The fame of the board broker system blurred throughout the long term, being replaced by completely automated mechanized trading platforms.
Illustration of a Board Broker System
Here is a speculative guide to show how board broker systems work. Suppose XYZ Financial is a member of the ABC Commodities Exchange, where it forms part of the exchange's board broker system. XYZ is assigned at least one specific commodities and is responsible for assisting other market participants with trading in those commodities in an orderly fashion.
In trading, it is common for the demand for specific commodities on the ABC Commodities Exchange to sometimes surpass their supply or for the inverse to happen. In those cases, XYZ is responsible for buying or selling that commodity to give liquidity and reduce the volatility of trading in that part of the market. XYZ is likewise responsible for offering different types of assistance, for example, laying out proper opening prices for commodities and diminishing the transaction costs looked by market participants.
As commodities exchange has become progressively automated in recent years, the job of board brokers and other market producers has changed. Today, firms like XYZ have progressively been replaced via automated electronic systems straightforwardly worked by the exchange.
Special Considerations
The notoriety of the board broker system blurred in recent years. It was continuously replaced with completely automated trade execution systems. These mechanized systems are regularly able to execute the job of board brokers all the more rapidly and at bigger volumes by basically dispensing with the requirement for human independent direction.
Features
- A board broker works for the commodity or options exchange and manages a specific set of commodities or options relying upon their mastery.
- Like the market-production activity happens on stock exchanges.
- Chicago Board Options Exchange (CBOE) is the most well known illustration of a board broker system.
- The job of board brokers has been basically replaced via automated electronic trading systems, which can exercise their obligations at higher volumes and a lot greater velocities.
- A board broker system is a method for giving liquidity and restricting volatility on a commodities exchange.
