Central Limit Order Book Or Clob

A trade execution model falls on a transparent system resembles with customer orders (bids and offers) on a price/time priority ’ basis is called central limit order book (CLOB).
Outstanding offers for purchase and sale are stored in a row and filled in a priority order according to price and entry time.
Price / Time Priority Principle refers to how orders are prioritized for execution.
First of all orders are ranked as per their prices. Then orders of the same price are then ranked depending on when they were entered.
The highest (“best”) bid order and the lowest (“cheapest”) offer order constitutes the best available market price.
Customers can cross the bid/ask spread and benefit from low-cost execution on regular basis. (You’re able to enter limit orders “in between” the bid and ask.)
They can also view the depth of the market or "stack" in which customers can see bid orders for different sizes and prices on the one hand and offer orders at different sizes and prices on the other.
By definition, CLOB is fully transparent, real-time, anonymous, and low cost in execution.
The use of a CLOB is common for highly standardized securities and small trade sizes.
In the CLOB model, customers can trade directly with dealers; dealers can trade with other dealers.
And most importantly, customers can trade directly with other customers anonymously.


Contrary tothe CLOB approach is the Request For Quote (“RFQ”) trading method.
RFQ is an asymmetric trade execution model.
In this method, a customer queries a finite set of participant market makers who quote a bid/offer (“a market”) to the customer.
The customer may only “hit the bid” (sell to the highest bidder) or “lift the offer” (buy from the cheapest seller).
The customer is prohibited from stepping inside the bid/ask spread and trying to reduce their execution fees.
Contrary to the CLOB model, customers can only trade with dealers. They can not trade with other customers.
Significantly, they cannot make markets themselves.
The cost of commercial execution is lower when more market participants can compete for the flow of orders as opposed to when orders are sent to a limited number of market makers with (possibly) non-competitive references.



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