As another comment pointed out, this is yet another example of cryptocurrency markets having to relearn what the financial industry has already learned.

In a way, it's interesting to see this sort of recapitulation take place.

It's been interesting watching 100 years of financial lessons, failures and calls for regulation playing out at 20x speed.

> Is it another company that did not get anyone from Island or InstaNet or Brut?

Do you mind giving some context to this statement? What I know of the ECNs you mentioned is from reading the book 'Dark Pools'. It would be great to get some insight into the innovations that were developed in all three projects, that have become a mainstay in 'fintech'.

Fundamentally, what ECNs brought to market is a total automation (and enormous speed) of running a basic limit book both internally and against other market participants. Pre-ECN having major volume if one wanted to sell a million shares and not to get screwed, one needed to develop a very good relationships with specific traders. Now most of such trades are considered to be pretty basic - you may get a little bit of slippage but by god you don't need to call a desk. It really solved front-running issue - it is possible to do a limit 5.1722 500k order but tell ECN to only display "[email protected] until 500k filled". So no desk knows that some fund wants to by 500k shares so it can't trade against this order.

ECNs were f!cking amazing and when Datek started routing limit orders to Island (genius play) from retail investors the days of crazy spreads, slippage and free money became history. Some of them also allowed you to do cross-exchange routing - I think BRUT was first to do it - so you could send your order via BRUT to a specific exchange. This killed NYSE/PHL/AMEX arbitrage (AMEX and PHL were slower than NYSE so it was possible to do a trade on NYSE and take offsetting position on PHL/AMEX immediately locking the spread)

Since ECNs would self-cross at the NBB and NBA even if the market had no action because the likes of NITE and GSCO were slowing down just to get better money on the order flow, the trading simply moved to Island and Instinet forcing regular market makers to play ball.

The effect of ECNs in trading was equivalent of introducing Ansible and Puppet management in server management. Crypto-exchanges now act the same way as the who who say "We only manage our servers using Vt100 terminals using vi"

Since i got offline questions:

NBB is "national best bid" and NBA is "national best ask"

Do you have an email address I can contact you on? I have even further questions.

hnnotyourday at that google service. i also added it to my profile here

Great, thanks, I will shoot you a mail some time soon.

Fantastic response, I appreciate it!

It is actually funny. Your comment made me pull out the code I wrote a few years to run a multi-book to basically do what BRUT did except it could trade anything. I'm now absolutely convinced that no existing crypto exchanges have anyone with a clue. As long the current exchanges provide APIs and someone like Lloyds would underwrite counter-party hedge, BRUTing them is a license to print money. They will get absolutely destroyed. It would be equivalent of Michael Phelps swimming against 7 year olds.

ELI5 market unlock?

Book is a set of "I buy X at Y" and "I sell K at P" standing orders ordered by the "best to worst" based on the price:

Buy|Sell

1000@5|[email protected] <-- top of the book/best price

[email protected]|[email protected]

..

..

..

100000@1|1000000@10000 <--- bottom of the book, worst price - this is "sucker catcher". If someone clown with more money than brains throws a marker order with the quantity higher than posted by everyone above, it will catch the bottom of the book.

At this point no trades are happening because no one is offering to buy at a price that someone else is willing to sell.

A market order is an order that does not specify the price. Only action and qualities. This is the only type of an "immediate" order because as long as there is anyone on the other side willing to sell or buy a quantity, it will be executed against the most eligible entry ( top ) of the book.

What happens when you do a limit order? The limit order "Buy [email protected]" will be inserted into the book based on the price so with this order the book will look:

1000@5|[email protected]

[email protected]|[email protected]

[email protected]|

..

..

..

100000@1|1000000@10000

As you can see still nothing is trading because there's still a spread.

What happens if someone does "sell 5000@5" against the book above:

1000@5|5000@5 <--- locked market

[email protected]|[email protected]

[email protected]|[email protected]

..

..

..

100000@1|1000000@10000

The market is now locked - there's someone who wants to buy @5 and someone who wants to sell @5. Result of this is automatic market unlock:

[email protected]|4000@5 <--- unlocked market

[email protected]|[email protected]

..

..

..

100000@1|1000000@10000

with a single 1000@5 traded so the "new price" of the asset is now @5

What happens when trading is suspended and market "ran away" i.e. significantly moved. Nothing special actually. All non-canceled orders are entered into a queue in an order of entry and are executed based on the book replay as if there was no suspension at all.