Off Book Trade

DEFINITION of Off-book trade

Off-book trade refers to trade outside the order book, meaning that stock trade is executed away from an exchange.

WHAT IT IS IN ESSENCE

Trades outside the order book which the counterparties agree to execute on the exchange (regulated under the exchange’s rules). Hence,  they have to send the report to the exchange.

Trade price is can be agreed between two parties. And then one of the two trade participants will report both sides of the trade to the market. In order to bring the execution ‘on exchange’.

The report can be sent later up to a specified time. Because, according to the exchange’s parameters, and doesn’t have to be immediate.

In general, the order book trading rules are high level and reference the trading system and parameters where applicable.
The rules primarily cover how member firms access the trading system and the responsibilities of member firms for their order management.  

These include order routing and member authorized connections. They also cover contra requests and the reversal of erroneous trades.

An off-order book transaction between an investor and a market maker is the point where they can find the problem. As such, each individual trade can be said to represent a buy by an investor or a sell by an investor.

HOW TO USE

Some trades, as we have just seen, are trades directly between buyers and sellers, without the intermediary of the middle-man. So what are they? The online services will tell you they are buys or sells, depending on whether the execution price was above or below the current mid-price. But in fact, they are neither one nor the other – they are both.

The off order book trading rules are less reliant on the system rules of the trading system and govern how member firms must interact when trading on Exchange away from the order book.

This section of the rules is more extensive than the order book trading rules. And covers subjects such as the determination of an on Exchange trade, trade reporting, the trade publication, and obligations of member firms to market makers.