Many early order flow auction designs handle the payment for orders when they execute on the chain rather than when they are won in the auction. Payments in these auctions only take place when the orders are executed, creating a free option for whoever wins the order. Bids in these auctions set the strike price of this option rather than the option premium. This paper develops a simple model of an order flow auction and compares contingent fees with upfront payments as well as mixtures of the two. Results suggest that auctions with a greater share of the payment contingent on execution have lower execution probability, lower revenue, and increased effective spreads in equilibrium. A Reputation system can act as a negative contingent fee, partially mitigating the downsides; however, unless the system is calibrated perfectly, some of the undesirable qualities of the contingent fees remain. Results suggest that designers of order flow auctions should avoid contingent fees whenever possible.
翻译:摘要:许多早期委托流量拍卖设计在订单执行时处理订单付款,而不是在拍卖中赢得订单时处理。这些拍卖中的付款仅在订单执行时进行,为赢得该订单的人提供了免费期权。在这些拍卖中,竞标者设置该期权的执行价格而不是期权费。本文开发了一个简单的委托流量拍卖模型,并将条件费用与预付款以及两者的混合进行比较。结果表明,条件费用所占比重越大的拍卖在均衡状态下执行概率较低,收入较低,且有效价差增大。声誉系统可以作为负面的条件费用,部分缓解不利因素;但是,除非该系统得到完美校准,否则条件费用的一些不良品质仍然存在。结果表明,委托流量拍卖的设计者应尽量避免条件费用。