Derivative Trading Engine Penny to Nickel Quote Rounding
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Solution Overview
Problem
The large number of derivative quotes in nickel/dime increments generates excessive data traffic, and investors desire to trade in smaller monetary increments, but changing to penny increments would significantly increase data handling burdens on trading facilities.
Innovation Solution
A trading engine system that receives quotes in penny increments, rounds them to nickel/dime increments, aggregates, and disseminates them, allowing for trading in smaller increments while managing data efficiently by maintaining quotes in standard increments.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If derivative quotes are changed from nickel/dime increments to penny increments, then investors can trade in smaller monetary increments, but the number of derivative quotes and data handling burden will greatly increase
Solution Approach 1:
The system segments the quote handling process into two distinct layers: internal processing in penny increments for precision, and external dissemination in nickel/dime increments for data efficiency. This segmentation allows the system to simultaneously support fine-grained trading while maintaining manageable data volumes.
Solution Approach 2:
The trading engine acts as an intermediary that receives penny increment quotes, converts them to nickel/dime increments, and disseminates the converted quotes. This intermediary function resolves the contradiction by translating between the two increment systems, allowing investors to trade in penny increments while the market receives data in the more compact nickel/dime format.
2Productivity
If the number of derivative quotes is reduced to manage data traffic, then data handling becomes more efficient, but trading precision in smaller increments is lost
Solution Approach 1:
The system operates in two dimensional layers: an internal dimension using penny increments for precise trading calculations, and an external dimension using nickel/dime increments for efficient data dissemination. This dimensional approach allows the system to maintain precision where needed while reducing data volume where appropriate.
Solution Approach 2:
The system dynamically changes the price increment parameter based on the operational context: penny increments are used for receiving and processing quotes internally, while nickel/dime increments are used for external dissemination. This parameter transformation allows the system to optimize both precision and efficiency in different operational phases.
Data Source
AI summary
A system and method for trading derivatives in penny increments while disseminating quotes for derivatives in nickel/dime increments is disclosed. A trading engine receives quotes for a derivative in penny increments from at least one entity. The trading engine rounds out the quotes for the derivative in penny increments to quotes for the derivative in nickel/dime increments. The quotes in nickel/dime increments are aggregated and disseminated. The trading engine receives bids and offers to take positions in the derivative based on the aggregate quotes for the derivative in nickel/dime increments and executes trades for the derivative by matching bids and offers to buy and sell positions in the derivative.