Provably Linkable Trading

Quantitative Finance, online 2009, in print 2010

20 Pages Posted: 26 Oct 2009 Last revised: 13 Aug 2014

Chris Kenyon

Lloyds Banking Group

Jan Camenisch

IBM - IBM Zurich Research Laboratory

Date Written: April 5, 2006


Share trading on most major exchanges is anonymous in that only order price, quantity and timing are visible. Traders include in their trading decisions allowance for adverse selection, i.e. the risk that posted bids and asks include private information about future stock price movements. Thus trading anonymity means that traders wishing to trade for non-informational reasons, e.g. liquidity, must also pay this adverse selection penalty. However, if traders could selectively reveal their identities for specific trades, they could build reputations. Reputations are currently useful to traders on upstairs (i.e. non-anonymous) markets who can credibly signal non-informational trading. By useful we mean that that the traders obtain better prices. Thus if reputations could be created on downstairs (i.e. anonymous) markets these non-informational upstairs traders could potentially benefit from the full exchange participant pool and potentially avoid the adverse selection penalty. We present a method for traders to provably link selected trades to specific identities on anonymous markets. The method uses verifiable random functions and cryptographic signatures. We give analytic methods to determine whether a specific degree of provable linkability is feasible for a give trade size. If feasible, we show how to embed a verifiable random number into the desired trade without changing total order size, price or timing. We also consider attack methods. The selective removal of anonymity presented here offers the possibility for traders doing non-information-based trades to obtain improved prices whilst using conventional exchanges. More generally it permits traders to create reputations on anonymous trading exchanges without requiring changes from the exchange. In addition provable linkability offers the possibility of (real time) verification of order execution. This can be of interest in, for example, share buyback programs executed by brokers.

Keywords: reputation, anonymity removal, verifiable random functions, cryptographic signatures, trading, upstairs markets, downstairs markets, exchanges

JEL Classification: G14, L14

Suggested Citation

Kenyon, Chris and Camenisch, Jan, Provably Linkable Trading (April 5, 2006). Quantitative Finance, online 2009, in print 2010. Available at SSRN:

Chris Kenyon (Contact Author)

Lloyds Banking Group ( email )

10 Gresham Street
London, EC2V 7AE
United Kingdom

Jan Camenisch

IBM - IBM Zurich Research Laboratory ( email )

Saumerstrasse 4
CH-8803 Ruschlikon

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