Intelligent Electronic Trading for Commodity Exchanges

their preferences on those product dimensions. Since a single commodity market is made up of many heterogeneous goods that are close to each other but different in grade, quality and delivery conditions, preference satisfaction plays an important role in improving trade matches. In cotton markets, for instance, a cotton merchant may want to specify his preferences like " I prefer early delivery, " or " I prefer cotton from a special region. " IET provides extended standards and protocols for product descriptions so that traders can represent their utilities in terms of preferences as well as prices. The trade match algorithms of IET link commodity buy and sell orders in a way that 1. not only maximizes the total transaction volume based on an economic theory of price and quantity (economic auction model) 2. but also satisfies qualitative preferences based on a social choice model. We combine an economic auction model with a social choice model to develop the trade match algorithms. The economic auction model matches buyers and sellers in an economic way: it determines the optimal trade quantity between buyers and sellers, together with their optimal transaction prices in order to maximize the total exchanged volume in the market. The economic auction model employs a linear programming method to find this market equilibrium point. The economic auction model is in principle a mathematical approach using only price and quantity. The satisfaction of qualitative preferences requires a logical inference approach based on a social choice model. The social choice model assumes that The exchange of commodities has several chacteristics that can be summarized in three points. First, trades of commodity items like cotton or grain can be Commodity exchanges offer potential market structures for electronic trading. The Intelligent Electronic Trading (IET) system aims to provide advanced market functions with more advanced features than currently existing electronic market systems. IET is a combination of an economic auction model with a social choice model. It maximizes the total transaction volume while satisfying qualitative preferences of traders. Constraint Logic Programming is used as a new information technology to structure and implement the trade match algorithms of IET. or bid prices and to be matched with the most preferred trading partners in terms of product characteristics or delivery conditions. The IET system consists of communications technologies and a central processor (see Figure 1). Bids and offers for a commodity item are submitted by …