Electronic Trading Platform Using Open Outcry to Prevent Latency Arbitrage
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Solution Overview
Problem
Electronic trading platforms suffer from latency arbitrage and unfairness due to algorithmic order matching, which benefits high-frequency traders at the expense of market integrity and fairness, compromising the customer-broker relationship and introducing fraud.
Innovation Solution
Reinstating the open outcry methodology within an electronic trading platform that ensures human interaction, maintains privacy and anonymity, and facilitates compliance through secure and auditable processes, excluding high-frequency trading algorithms.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If algorithmic order matching is used in electronic trading platforms, then trading speed and efficiency are improved, but latency arbitrage and unfairness increase
Solution Approach 1:
The patent extracts and removes the algorithmic order matching component from the trading system, replacing it with a human-mediated open outcry methodology. This extraction eliminates the source of latency arbitrage while preserving the essential trading function through human traders who manually execute orders based on real-time market conditions, thereby maintaining market integrity while accepting reduced automated speed.
Solution Approach 2:
The patent introduces human traders as intermediaries between buyers and sellers, replacing the direct algorithmic matching mechanism. These human intermediaries manually negotiate and execute trades, providing a fair mediation process that prevents algorithmic exploitation while maintaining trading efficiency through human judgment and real-time market understanding.
2Productivity
If electronic order matching is implemented, then trading efficiency increases, but opportunities for fraud and unfairness are created
Solution Approach 1:
The patent converts the potential harm of reduced trading speed into a benefit by using human traders who can detect and prevent fraudulent activities through their judgment and discretion. The slower, manual trading process eliminates algorithmic exploitation while human traders maintain efficiency through their expertise and real-time market analysis, turning the perceived disadvantage of manual processing into an advantage for market fairness.
3Reliability
If human interaction is used in trading, then market integrity is maintained, but trading speed decreases
Solution Approach 1:
The patent implements a dynamic trading system where human traders adapt their response speed and negotiation pace based on market conditions. The system allows for flexible, real-time adjustments in trading speed while maintaining human judgment and integrity, enabling traders to respond quickly to opportunities when needed while ensuring fairness in all transactions through human oversight.
Data Source
AI summary
A secure, compliant trading platform for securities exchange using the open outcry methodology within a secure electronic exchange environment that reduces or eliminates unfairness and opportunities for fraud within the marketplace. The system assures that private information is retained private until a bid or offer is placed. Trades are not recorded or reported until actually executed and all information is made available to all parties at the same time. The system archives all exchange member information in time sequence for compliance, auditing, and forensic purposes. The system uses a personal display device for each exchange member and high speed networking to allow exchange members to communicate with customers and other exchange members while in a physical exchange facility that may be virtually connected to other physical exchange facilities through a high speed secure network.