Facilitation Cross Order Type for Latency Arbitrage Reduction
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Solution Overview
Problem
Current electronic trading platforms face inefficiencies and unfair practices due to lack of transparency, oversupply of market data, and vulnerability to high-frequency trading, leading to increased market risks for investors and brokers.
Innovation Solution
The Transmission Latency Leveling (TLL) system introduces a Point-of-Presence (POP) infrastructure that manages trading orders and market data latency, providing investors with tools to control order routing and reduce arbitrage opportunities, while educating them on predatory trading practices and offering mechanisms to mitigate risks.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Speed
If high-frequency trading is allowed to operate freely on electronic trading platforms, then trading speed and efficiency are improved, but fairness and transparency deteriorate due to predatory trading practices and arbitrage opportunities
Solution Approach 1:
The patent introduces a Facilitation Cross order type that acts as an intermediary mechanism between buyers and sellers. This order type coordinates multiple trading steps (buying from one seller, selling to another seller, or buying from a buyer) to ensure fair execution while maintaining high trading speed. The intermediary structure prevents predatory practices by requiring coordinated action across multiple trades rather than allowing isolated high-speed executions.
Solution Approach 2:
The system performs preliminary coordination of trading steps before execution. By pre-establishing the sequence of buys and sells that must occur together, the system ensures that high-frequency trading can proceed quickly while maintaining fairness. The preliminary arrangement of trading coordinates prevents arbitrage opportunities from arising during execution.
2Loss of information
If market data is distributed extensively to all participants, then market transparency is improved, but system complexity and data management burden increase
Solution Approach 1:
The Facilitation Cross order type enables market participants to self-coordinate their trading needs without requiring extensive external market data. Each participant provides their own buy and sell coordinates, and the system automatically matches them. This self-service approach achieves transparency through the order coordinates themselves rather than requiring comprehensive market data distribution.
Solution Approach 2:
The patent extracts the essential information needed for trading coordination from the broader market data. By focusing only on the specific buy and sell coordinates relevant to each participant's order, the system achieves necessary transparency without the complexity of managing complete market datasets. Only the minimal required information is processed and transmitted.
3Adaptability or versatility
If brokers handle trades manually and on an ad hoc basis, then flexibility and customization are improved, but market risk exposure increases due to longer transaction times
Solution Approach 1:
The system provides dynamic flexibility by allowing brokers to configure custom routing instructions and priority levels for different order types. The Facilitation Cross order type can be dynamically adjusted based on market conditions and broker preferences. This dynamic configuration enables customized trading strategies while maintaining automated execution that reduces risk exposure compared to manual processing.
Solution Approach 2:
The automated Facilitation Cross order execution ensures continuous processing of trading instructions without interruption. Once an order is submitted, the system continuously coordinates and executes the required buy and sell steps automatically, eliminating the gaps in processing that occur with manual handling. This continuous action reduces market risk exposure while maintaining the flexibility needed for customized trading strategies.
Data Source
AI summary
A number of techniques for improving electronic trading are disclosed. According to some embodiments, an electronic trading system may establish a new Facilitation Cross order type which automatically performs a number of trading steps in a single uninterrupted sequence so as to help a risk trader fulfill a client investor's trading request efficiently and with lower market risk.