The execution takes place directly between the principals. For example, an initiating party sets up a large order and a member of the contract market realizes the order in the pit. He then has to find a counterparty to fulfill the order. This is not a simple task because of the order size.
For this reason both parties define a maximum quantity that is traded and an execution price that is intended. After this arrangement the quantity of the initiating party is transferred in the pit for trading.
Bids and offers that are up to the intended execution price are accepted. After trading there might be some unexecuted quantity. This part is traded between the counterparty that was found before trading in the pit and the initiating party.
The intended execution price serves as the basis for this trading. Large order execution procedures are often abbreviated by LOX. These procedures can be found in the most trading systems.
|Large Order Execution Procedures|