What is a central limit order book?
A central limit order book (CLOB) is a trading system that matches orders. It’s transparent, low-cost, anonymous and can match orders in real-time.
Where have you heard aboutcentral limit order books?
In 2000 the US Securities and Exchange Commission (SEC) proposed that a central limit order book be used as a centralised database of limit orders. Securities companies successfully opposed it, fearing an automated system would cause them to lose trade volume.
What you need to know about central limit order books.
Most exchanges around the world use a central limit order book. In a typical market, buyers and sellers must submit orders to a central limit order book, which collates all outstanding buy and sell orders.
When a new order can be matched against an existing order it gets executed, otherwise the new order enters the database and waits for another order to offset it.
There are two types of central limit order book; hard, which executes orders immediately; and soft, which provides information but doesn’t include automation.
In the derivatives market central limit order books are expected to slowly replace over-the-counter (OTC) trading, which is commonly used outside exchanges. Central limit order books are believed to carry less operational and default risk.