Latency Floor Order Batching for Fair Electronic Trading Access
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Solution Overview
Problem
Existing electronic trading systems face challenges in managing latency variations and order processing delays due to disparities in network latency and order submission volumes, leading to unfair access and processing delays, particularly for smaller traders using less sophisticated systems.
Innovation Solution
Implementing a latency floor mechanism that batches incoming orders and processes them randomly or pseudo-randomly, independent of their receipt time, ensuring fair access by appending orders from the same party to previous batches and processing one order from each party per instrument in turn, regardless of receipt time.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If orders are processed in strict time-priority order, then processing speed and efficiency are improved, but fairness and equity of access are worsened due to network latency variations
Solution Approach 1:
The system performs preliminary actions by receiving and validating orders before the batch window expires, storing them in a buffer. This preliminary buffering allows the system to decouple order receipt from order processing, enabling fair random selection while maintaining high processing throughput when batches are submitted to the matching engine.
Solution Approach 2:
The system implements periodic batch processing where orders are collected in batches during defined time windows and then submitted together to the matching engine. This periodic action creates regular processing cycles that balance fairness (random selection within batches) with efficiency (bulk processing), resolving the contradiction between speed and equity.
2Ease of operation
If a latency floor mechanism is implemented to ensure fair processing, then equity of access is improved, but processing time and system latency are worsened
Solution Approach 1:
The system applies partial randomization only within batch windows rather than continuous randomization, and only for incoming orders during the batch period. This partial action provides enough fairness to level the playing field for slower traders while minimizing overall processing delays, as the matching engine can still process batches efficiently without continuous interruption.
Solution Approach 2:
The matching engine maintains continuous operation by processing batches of orders without idle time between batches. The buffer ensures that the matching engine always has work to process, eliminating wasted processing time while the batch mechanism provides fairness. This continuity maintains high productivity despite the added fairness mechanism.
3Productivity
If orders from high-volume traders are processed first, then processing efficiency is improved, but fairness among traders is worsened
Solution Approach 1:
The system performs preliminary random selection of orders from the buffer before submission to the matching engine. This preliminary randomization ensures that high-volume traders cannot dominate processing by simply submitting more orders, while the buffer mechanism maintains efficiency by preparing orders for batch processing rather than handling each order individually.
Solution Approach 2:
The batch processing mechanism creates periodic opportunities for all traders to have their orders processed, regardless of volume. Each batch window provides a fresh random selection opportunity, preventing any single trader from consistently dominating processing priority and ensuring equitable access while maintaining overall system efficiency through bulk processing.
Data Source
AI summary
The disclosed embodiments relate to electronic trading system architectures, for processing incoming orders to an electronic trading system, which feature a latency floor mechanism which imparts a delay on incoming orders. In particular, the disclosed embodiments implement a latency floor mechanism which compensates for both latency variations among trader's ability to submit transactions and also variations in the volume of submitted transactions therefrom.