Order Entry Batching for Trading Fairness
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Solution Overview
Problem
Existing electronic trading systems face fairness issues due to latency disparities, where larger entities with better infrastructure have an advantage in submitting orders quickly, leading to unfairness, especially in public networks.
Innovation Solution
A computerized method where electronic order messages are batched and stored in a server, then submitted to a matching engine in a randomized order, reducing the importance of transmission speed and allowing smaller participants to have their orders matched fairly, regardless of their infrastructure.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If orders are submitted quickly to the matching engine, then trading speed and productivity are improved, but fairness is worsened because entities with better infrastructure have an advantage
Solution Approach 1:
The system performs preliminary actions by buffering orders received during a predetermined time period before submitting them to the matching engine. This buffering mechanism allows the system to collect orders from all participants regardless of their transmission speed, then process them together, thereby eliminating the advantage of faster transmission and ensuring fairness while maintaining productivity.
Solution Approach 2:
The buffering mechanism acts as an intermediary between the order receipt point and the matching engine. It temporarily stores orders and controls their release to the matching engine, ensuring that orders are processed in a fair manner independent of transmission speed, thus mediating between the need for speed and the requirement for fairness.
2Reliability
If a centralized matching engine is used, then system control and reliability are improved, but latency issues worsen for participants from different geographical regions
Solution Approach 1:
The system performs preliminary buffering of orders during a predetermined time period before they are submitted to the centralized matching engine. This allows participants from different geographical regions to submit orders without suffering latency penalties, as all orders are collected and processed together, maintaining system control while reducing latency impact.
3Productivity
If market views are distributed periodically to trading floors, then system efficiency is improved, but fairness is worsened because trading floors closer to the distribution point receive updates first
Solution Approach 1:
The system performs preliminary buffering of market view distributions during a predetermined time period. By collecting market views from the centralized system and then distributing them to trading floors after a set duration, the system ensures that all trading floors receive updates simultaneously, eliminating the advantage of geographical proximity while maintaining distribution efficiency.
Data Source
AI summary
Orders received by an electronic trading system are processed in batches based on the instrument to which an order relates. An incoming order is assigned to a queue of a queue set that makes up the batch according to a random process. Where orders are received from related trading parties, they are assigned to the same queue set according to their time of receipt. The batch has a random duration within defined minimum and maximum durations and at the end of the batch, the orders held in the queues are transferred to a matching thread of the trading system sequentially with one order being removed from each queue and a number of passes of the queues completed until orders have been removed.