Algorithmic Model for Exchange-Mandated MOC Order Settlement
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Solution Overview
Problem
Traditional Market-On-Close (MOC) models fail to account for exchange-specific instrument level parameters and rules, making manual intervention labor-intensive and costly for traders managing MOC orders, especially in instruments with specific settlement rules.
Innovation Solution
A trading system that stores and executes MOC orders based on exchange-mandated settlement rules, allowing traders to submit orders prior to settlement time and manage them according to specified parameters, thereby executing orders at or better than the settlement price without requiring users to control all exchange rules and parameters.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If traditional MOC models are used to execute orders near market close, then orders can be completed at or near close time, but the models fail to account for exchange-specific instrument level parameters and rules, requiring manual intervention
Solution Approach 1:
The system enables self-service by automatically retrieving exchange-specific settlement rules and instrument parameters, determining closing strategies, and executing orders without requiring manual trader intervention. The algorithmic model autonomously manages the entire MOC order lifecycle according to exchange mandates.
Solution Approach 2:
The patent replaces manual mechanical operations with an automated electronic system that programmatically accesses exchange rules, calculates settlement prices, and executes orders. This substitution eliminates the need for manual trader actions while maintaining compliance with exchange-specific parameters.
2Adaptability or versatility
If traders manually manage MOC orders across multiple exchanges with different settlement rules, then flexibility to adapt to specific instrument rules is achieved, but labor intensity and costs increase
Solution Approach 1:
The system provides universal functionality by implementing a single algorithmic model that can adapt to multiple exchanges and their respective settlement rules. The model universally handles different instrument types, exchange protocols, and settlement methodologies through automated rule retrieval and interpretation, eliminating the need for separate manual processes for each exchange.
Solution Approach 2:
The system dynamically adjusts operational parameters based on exchange-specific rules and instrument characteristics. By automatically retrieving and adapting to different settlement rules, time zones, and instrument parameters, the model optimizes execution strategies for each specific trading scenario without requiring manual reconfiguration.
3Speed
If automated algorithms are used to execute MOC orders, then execution speed and consistency improve, but the ability to account for complex exchange-specific rules and parameters may be compromised
Solution Approach 1:
The system introduces an intermediary layer that automatically retrieves and interprets exchange-specific rules and parameters. This intermediary component bridges the gap between automated execution requirements and complex exchange regulations by programmatically accessing rule sets, validating parameters, and translating them into executable trading instructions.
Solution Approach 2:
The system performs preliminary actions by pre-retrieving and storing exchange settlement rules, instrument parameters, and validation criteria before execution. This advance preparation ensures that when orders need to be executed, all necessary rule-based parameters are already available, enabling both speed and compliance.
Data Source
AI summary
A system and method for managing and processing Market-On-Close orders for financial instruments by dynamically employing trading strategies according to settlement rules for financial instruments is provided. Techniques disclosed can include the use of an execution model that allows a trader to submit a MOC order using a trading system. The trading system can be configured to store settlement and validation rules corresponding to a given trading instrument and/or exchange and can be configured to execute the order according to the rules specified by an exchange. The model disclosed herein can rely on exchange mandated settlement rules and settlement times, can accept the order prior to the settlement time, and can manage the order according to parameters and details of the execution model and the settlement rules specified by an exchange for a given instrument.