Micro Auction Trading System Using Dynamic Interval Segmentation
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Solution Overview
Problem
Algorithmic trading poses negative effects on marketplaces, including increased transaction flow, discouragement of market makers, and unfair advantages due to latency disparities among market participants, necessitating methods to alleviate these issues while accommodating algorithmic trading.
Innovation Solution
An electronic trading system processes orders in varying intervals, using pseudorandom or random interval lengths to reduce benefits for fast algorithms and runaway transactions, and implements call auctions with time-stamped order processing to equalize market access.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Speed
If orders are processed immediately upon receipt in continuous trading, then execution speed is improved, but fast algorithms gain unfair advantages and produce runaway transactions
Solution Approach 1:
The patent segments continuous order processing into discrete intervals called micro-auction periods. Orders received during each interval are collected and processed together in a call auction at the interval's end, rather than being executed immediately. This segmentation prevents fast algorithms from gaining continuous advantages while maintaining near-immediate execution through frequent, short intervals.
Solution Approach 2:
The system implements periodic call auctions at fixed intervals (e.g., every 100 milliseconds) to process accumulated orders. This periodic action replaces continuous processing, creating regular execution opportunities that balance speed with fairness. The periodic structure prevents runaway algorithms by resetting the processing cycle regularly.
2Reliability
If fixed interval lengths are used for micro-auctions, then processing predictability is improved, but market makers cannot adapt to varying liquidity conditions
Solution Approach 1:
The patent introduces dynamic interval adjustment where the length of micro-auction periods varies based on market conditions. The system monitors order flow characteristics and adjusts interval lengths accordingly—shorter intervals during high activity periods and longer intervals during low activity. This dynamics approach maintains reliability through structured processing while adapting to varying liquidity conditions.
Solution Approach 2:
The system incorporates feedback mechanisms that monitor market conditions (order flow volume, liquidity levels, transaction patterns) and use this information to adjust micro-auction interval lengths. This feedback loop enables the system to adapt interval durations to current market states, optimizing both predictability and adaptability.
3Object-affected harmful factors
If call auctions are implemented to prevent sniping, then fairness is improved, but execution latency increases
Solution Approach 1:
The patent changes the time parameter by implementing very short micro-auction intervals (e.g., 100 milliseconds or less). This parameter change allows call auctions to prevent sniping while minimizing execution latency. The frequent, short intervals create enough delay to prevent sniping but are short enough to maintain near-immediate execution feel for market participants.
Data Source
AI summary
A method and an electronic trading system is disclosed for processing orders in a series of intervals. Receiving means of the electronic trading system receives orders in electronic messages via a communications network during a series of intervals, and processing means of the electronic trading system processing each order after the end of an interval during which the order was received. The length of the intervals of the series of intervals is selected by the processing means to vary between consecutive intervals.