Cancel Delay Prioritization for Trading Fairness
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
Conventional electronic trading venues face issues with fairness due to network latency and the advantage sophisticated computer resources have in executing trades quickly, leading to perceived unfairness in races to cancel maker orders.
Innovation Solution
The system prioritizes maker orders with cancel delay values by matching them with taker orders before competing maker orders with smaller or no cancel delay values, even if the competing orders were received earlier, and uses cancel delay values to determine when a maker order can be canceled.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If conventional price-time priority matching is used, then trading speed and efficiency are improved, but fairness is worsened due to network latency and sophisticated computer resources giving advantage to certain participants
Solution Approach 1:
The system applies a preliminary delay to order cancelations before they take effect. This preliminary action (delay) prevents sophisticated participants from instantly canceling orders based on speed advantages, thereby reducing the unfairness caused by network latency and advanced computer resources while maintaining overall trading efficiency
2Adaptability or versatility
If maker orders can be canceled immediately, then makers can quickly adapt to market changes and provide liquidity, but takers perceive unfairness due to races to cancel
Solution Approach 1:
The system implements a preliminary delay mechanism that prevents immediate cancelation of maker orders. This delay ensures that takers have a reasonable window to execute trades before orders can be canceled, thereby maintaining perceived fairness while still allowing makers to eventually adapt to market changes and continue providing liquidity
3Reliability
If cancel delay is applied to maker orders, then fairness for takers is improved, but cancelation speed and responsiveness are worsened
Solution Approach 1:
The system applies a controlled preliminary delay to cancelations that balances fairness and responsiveness. The delay is not indefinite but rather a predetermined period that provides fairness to takers while still allowing makers to eventually cancel orders when market conditions change, thus maintaining acceptable cancelation speed
Data Source
AI summary
An electronic trading venue (ETV) may prioritize maker orders that specify or are associated with cancel delay values by selecting a maker order to be matched with taker orders before competing maker orders, at the same price level for a given instrument, that have smaller or no cancel delay values. Such prioritization may occur even if the competing maker orders were received before the maker order. A cancel delay value indicates an amount of time that must pass after a request to cancel a maker order is received before the ETV actually cancels the maker order. Thus, in exchange for prioritization, maker orders will be subject to a cancelation delay that starts after a cancel request is received and during which a maker order will not be canceled. Takers may benefit from this by being able to match with a maker order before it can be canceled.