Why Is a Central Limit Order Book Less Suitable for Complex Financial Derivatives?

Central limit order books (CLOBs) are less suitable for complex financial derivatives due to their inherent lack of standardization and lower liquidity. CLOBs function best with fungible, high-volume instruments where trades can be matched based on price-time priority.

Complex derivatives often have bespoke terms, making each contract unique and fragmenting liquidity. This illiquidity leads to wide bid-ask spreads and poor price discovery, undermining the efficiency of the CLOB model.