Two-Layer Execution Architecture for Illiquid SME Equity Markets

Thin equity markets for small and medium-sized enterprises often have sparse order flow that cannot sustain continuous quoting. This study proposes a two-layer execution architecture with a modified constant product market maker (modCPMM) designed to provide baseline immediacy for ordinary marketable order flow and a secondary request-for-quote–style execution layer handling residual, block-sized, or pool-inefficient trades. The modCPMM pricing rule builds on a break-even–oriented transaction cost logic and embeds a surcharge that depends on order and pool sizes. Thus, it offers a structured basis for reserve-based liquidity provision in a traditional asset setting. A restricted-information calibration and screening analysis was conducted using Swiss OTC-X trades, spread snapshots, and brokerage commissions as a case study. Implementation plausibility depends strongly on benchmark execution costs, the targeted service region, and issuer scale. This study shows how service region targets can be translated into pool capital requirements and screening rules for candidate securities.