Network Layer Risk Check Engine for Low-Latency Order Validation
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Solution Overview
Problem
Existing systems that perform primary market and regulatory risk management checks introduce latency in the transmission of electronic orders to financial exchanges, which can expose orders to market risk and violate regulatory requirements, particularly due to the need for pre-trade real-time risk management checks.
Innovation Solution
A method and system that interpose a risk check engine between client and exchange computers, performing risk checks at the network layer using hardware acceleration and native protocol network-based risk management techniques, reducing latency by processing order messages closer to the network layer and avoiding traditional computing constraints.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional risk management check systems are used to perform pre-trade real-time risk management checks, then regulatory compliance is achieved, but latency increases to approximately 180 milliseconds
Solution Approach 1:
The patent replaces traditional software-based risk management systems with hardware-based field programmable gate arrays (FPGAs) that operate at the network layer. This substitution of mechanical/computing systems with hardware logic circuits enables risk checks to be performed in parallel with order routing, reducing latency from 180 milliseconds to approximately 10 milliseconds while maintaining regulatory compliance through the same risk check functionalities.
Solution Approach 2:
The patent moves risk management checks from the application layer to the network layer, creating a new dimensional approach to order processing. By implementing risk check engines at the network layer alongside the routing engine, the system performs risk assessments in parallel with order routing operations rather than sequentially, fundamentally changing the processing architecture to eliminate latency.
2Reliability
If risk checks are performed at the application layer using traditional computing systems, then comprehensive risk analysis is achieved, but processing speed decreases due to computing constraints
Solution Approach 1:
The patent replaces application layer software processing with hardware-based FPGAs that execute risk check logic through configurable logic circuits. This hardware implementation performs the same comprehensive risk analysis functions but at network layer speeds, achieving order message throughput in the microsecond range compared to millisecond-range performance with traditional computing systems.
Solution Approach 2:
The patent transitions risk check execution from the application layer to the network layer, where hardware-based processing occurs parallel to order routing. This dimensional shift enables simultaneous execution of routing and risk check operations, eliminating the sequential processing bottleneck that limited speed in traditional systems.
3Productivity
If naked access and sponsored access models are used to enable direct market access, then order message throughput increases and latency decreases, but brokers lose ability to conduct pre-trade risk management checks
Solution Approach 1:
The patent merges the routing engine and risk check engine into a single integrated system at the network layer. Both functions operate simultaneously on the same hardware platform, allowing brokers to maintain direct market access with high throughput while ensuring pre-trade risk management checks are performed on all order messages before exchange submission.
Solution Approach 2:
The patent positions the broker's integrated system as an intermediary between the client's direct market access connection and the exchange. The risk check engine acts as a mediator that validates orders in real-time without blocking the direct access pathway, enabling both high-speed trading and regulatory compliance within the same architecture.
Data Source
AI summary
Methods and systems for performing risk checks on electronic orders for securities. According to one embodiment, the method comprises performing risk checks on an electronic order for a security, the electronic order being issued from a client computer to an exchange computer via a network, wherein a risk check engine is logically interposed between the client computer and the exchange computer on the network. According to the illustrative method, at the risk check engine, the electronic order is received and parsed into one or more fields and data within the fields is identified at a network layer. The risk check engine performs one or more risk checks on the data using a processing element at the network layer. If the risk checks are passed, the risk check engine permits the electronic order to be transmitted to the exchange computer. If one or more of the risk checks are violated, the risk check engine rejects the order.