Interval Price Limit Trading Control
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Solution Overview
Problem
Sharp, unwanted price movements in financial instruments can adversely affect financial markets, potentially leading to market crashes, and existing solutions often hinder trading activities entirely.
Innovation Solution
Implementing an interval price limit (IPL) system, where a predetermined price range is established for a financial instrument during a set period, allowing trades within this range to proceed while preventing those outside it, thereby acting as a 'virtual circuit-breaker' to control price movements.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional circuit-breaker mechanisms are used to prevent sharp price movements, then market stability is improved, but trading activities are completely halted
Solution Approach 1:
The patent divides the price limit mechanism into time-based intervals (IPL periods) rather than applying a complete trading halt. By segmenting the control into periodic intervals with anchor prices and permissible ranges, the system allows continuous trading within each interval while preventing excessive movements, thus resolving the contradiction between stability and trading continuity
Solution Approach 2:
The system dynamically adjusts price limits based on the IPL period structure, where each interval has its own anchor price and permissible increase/decrease amount. This dynamic, time-varying approach allows the market to recover and trade normally after each interval expires, preventing permanent trading halts while still providing stability during each interval
2Object-affected harmful factors
If price limits are set to prevent unwanted price movements, then harmful price fluctuations are reduced, but legitimate trades are hindered
Solution Approach 1:
The patent applies different price limit characteristics to different time intervals rather than a uniform restriction. Each IPL period has its own anchor price and permissible range, allowing trades to proceed normally when prices remain within the permissible increase/decrease amounts, while only restricting trades that would cause excessive movements. This localized, time-specific approach protects legitimate trades while preventing harmful fluctuations
Data Source
AI summary
Systems and methods of limiting price movement of a financial instrument include establishing, via an exchange server comprising at least one matching engine module, an interval price limit (IPL) period that defines a predetermined length of time commencing at a start time, and an IPL amount that defines a permissible increase or decrease in an anchor price of a financial instrument during the IPL period. Buy and sell orders received for the financial instrument during the IPL period are matched to generate at least one matched trade having a trade price. The trade price is compared to the anchor price, and if the trade price is within the IPL amount of the anchor price, the matching engine module executes the at least one matched trade. Otherwise, if it is not, the matching engine module is prevented from executing the matched trade.