Dynamic Peg Order Segmentation for Electronic Trading
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Solution Overview
Problem
In electronic trading systems, high-speed traders exploit momentary discrepancies in order book synchronization across exchanges for unfair advantages, and conventional methods either reveal too much information or too little, leading to predatory trading strategies.
Innovation Solution
Implementing dynamic peg orders (DPOs) divided into displayed and non-displayed portions, with discretion in price matching allowed during stability and limited during instability, to balance information availability and prevent predatory trading.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If all order information is displayed to provide complete information availability, then market transparency is improved, but predatory trading strategies can exploit this information
Solution Approach 1:
The patent segments order information into displayed and non-displayed portions. The displayed portion provides necessary market transparency while the non-displayed portion protects against predatory trading exploitation. This segmentation allows the system to provide information availability without revealing complete order details that could be exploited by high-speed traders.
2Object-affected harmful factors
If no order information is displayed to prevent predatory trading, then predatory trading is reduced, but market transparency deteriorates
Solution Approach 1:
The patent applies local quality by providing different levels of information disclosure for different portions of orders. Rather than uniformly hiding or displaying all order information, the system selectively displays certain portions while keeping others non-displayed, allowing market transparency for some information while protecting against predatory exploitation of specific order details.
3Loss of information
If dynamic peg orders are fully displayed to ensure transparency, then information availability is improved, but price manipulation risks increase during unstable periods
Solution Approach 1:
The patent implements dynamics by making the display status of peg orders conditional rather than static. Orders can transition between displayed and non-displayed states based on market conditions, particularly during periods of instability. This dynamic approach allows the system to maintain information availability during stable periods while preventing price manipulation risks during unstable periods.
4Speed
If high-speed trading is enabled to improve execution speed, then trading efficiency is improved, but information leakage to certain participants increases
Solution Approach 1:
The patent applies preliminary anti-action by preemptively restricting access to certain order information before high-speed traders can exploit it. Rather than reacting to information leakage after it occurs, the system proactively withholds non-displayed order portions from high-speed feeds, preventing information leakage to certain participants while still allowing fast execution of displayed information.
Data Source
AI summary
A specialized memory structure is provided for storing parts of orders received at an electronic trading system. A received order is divided into a displayed portion and a non-displayed portion, and each portion is allocated to a respective part of the memory structure. The memory structure is configured such that while matching the order with a contra order, priority is given to the displayed portion over the non-displayed portion. If such a match occurs, the displayed portion may be replenished. The matching in the non-displayed portion generally occurs according to rules of applying discretion. The matching in the displayed portion may occur at the displayed price or according to the rules of discretion.