Dynamic Circuit Breaker for Electronic Trading Systems
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Solution Overview
Problem
Electronic trading systems face challenges in rapidly detecting and responding to sudden and extraordinary price movements, leading to market disruptions and potential loss of consensus in market value among participants, due to the limitations of existing static circuit breakers that are reactionary and generalized.
Innovation Solution
Implementing dynamic circuit breakers within the trading platform to monitor price movements in real-time, allowing for proactive and selective actions to prevent market disruptions by setting dynamic price limits based on a rolling look-back window, enabling enhanced market integrity checks and faster decision-making.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If static circuit breakers are used to detect and respond to price movements, then market disruptions can be mitigated, but the response is delayed and generalized causing unnecessary market halts
Solution Approach 1:
The patent implements dynamic circuit breakers that continuously adjust price limits based on rolling look-back windows and real-time market conditions, transforming the static, fixed-threshold circuit breaker system into a dynamic one that adapts to changing market volatility and provides timely, targeted responses without unnecessary halts
Solution Approach 2:
The system changes the parameter of price limits from fixed static values to dynamic values that are continuously recalculated based on historical price data within rolling look-back windows, enabling the circuit breaker to respond appropriately to different market conditions while reducing unnecessary disruptions
2Ease of manufacture
If static circuit breakers are used, then implementation is simple, but they cannot provide tailored responses to specific market conditions
Solution Approach 1:
The patent applies different dynamic price limits to different markets and instruments based on their specific characteristics and volatility patterns, allowing each market to have customized protection thresholds calculated from its own historical data, thereby providing localized, tailored responses rather than blanket static limits
3Productivity
If faster electronic trading is implemented, then market efficiency and liquidity improve, but problems propagate faster causing more severe market disruptions
Solution Approach 1:
The dynamic circuit breaker system performs preliminary actions by continuously monitoring and adjusting price limits before extreme movements can propagate through the market, using rolling look-back windows to detect emerging volatility patterns and preemptively adjust thresholds to contain potential disruptions before they spread
Solution Approach 2:
The system implements continuous feedback loops where real-time price data feeds into dynamic recalibration of circuit breaker thresholds, allowing the system to learn from market behavior and adjust protection levels accordingly, thereby containing harmful propagation while maintaining efficient trading within normal parameters
Data Source
AI summary
A computer implemented method for controlling operational states of a hardware matching processor includes monitoring, by a circuit breaker, incoming electronic data transaction request messages to the hardware matching processor; dynamically defining a range of values as a function of values included with electronic data transaction request messages received during a rolling lookback window; detecting that an incoming electronic data transaction request message contains a value outside the range of values; transitioning the electronic data transaction processing system into a pre-open state for a predetermined period, thereby preventing the hardware matching processor from matching incoming electronic data transaction request messages; calculating a pre-open value at an end of the pre-open state; and re-opening the electronic data transaction processing system at the calculated pre-open value, thereby allowing the hardware matching processor to match incoming electronic data transaction request messages.