Order Match Allocation Priorities for Fair Electronic Trading

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Solution Overview

Problem

Electronic trading systems face challenges in maintaining market integrity, transparency, and fairness by minimizing human influence and ensuring equitable access, while managing transaction processing speed, latency, and capacity, particularly in matching incoming orders with resting orders.

Innovation Solution

The system regulates the rate of incoming orders by buffering or batching them and applies hybrid matching algorithms that gradually shift from time-based priority to proportional allocation, incentivizing market-making behavior and reducing the impact of speed advantages, thus promoting fair and efficient order matching.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Speed

If electronic trading systems use traditional time-based priority matching, then transaction processing speed is improved, but market fairness and equity deteriorate due to speed advantages being rewarded

Engineering Contradiction:

Improvetransaction processing speedVSAvoidmarket fairness

Core Design Contradiction:

SpeedVSEase of operation

Solution Approach 1:

The system dynamically adjusts matching priorities based on order characteristics, trader behavior patterns, and market conditions. Instead of static time-based priority, the system employs dynamic weighting factors that can favor market-making behavior, limit order placement, and other desirable trading patterns, thereby balancing speed with fairness

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The system changes the parameters used for order matching from purely temporal (time of submission) to a multi-dimensional parameter set including order type, trader history, market impact, and behavioral patterns. This allows the system to process transactions efficiently while rewarding intended trading behaviors and reducing the impact of excessive speed investments

Inventive Principle:

Principle #35Parameter changes

2Reliability

If the system buffers or batches incoming orders to regulate rate, then market integrity and fairness are improved, but transaction processing latency increases

Engineering Contradiction:

Improvemarket integrityVSAvoidtransaction processing latency

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The system performs preliminary actions by pre-processing and categorizing incoming orders before full matching occurs. Orders are buffered and classified based on their characteristics, allowing the system to prepare matching strategies in advance and reduce actual processing latency when matches are executed

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system implements periodic batching of orders at strategically determined intervals rather than continuous processing. This periodic action allows the system to maintain market integrity through regulated processing while managing latency by processing orders in efficient batches rather than individually, balancing reliability and time loss

Inventive Principle:

Principle #19Periodic action

3Productivity

If the system applies hybrid matching algorithms that shift from time-based to proportional allocation, then market liquidity is enhanced, but system complexity increases

Engineering Contradiction:

Improvemarket liquidityVSAvoidsystem complexity

Core Design Contradiction:

ProductivityVSDevice complexity

Solution Approach 1:

The system employs dynamic matching algorithms that can shift between time-based priority and proportional allocation based on market conditions, order characteristics, and liquidity needs. This dynamic approach enhances market liquidity by adapting to different trading scenarios while managing complexity through rule-based transitions rather than fully complex continuous optimization

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The system changes matching parameters based on order type and market state, transitioning from time-based to proportional allocation when appropriate for enhancing liquidity. This parameter flexibility allows the system to improve productivity by matching orders more effectively in various market conditions while controlling complexity through predefined parameter switching rules

Inventive Principle:

Principle #35Parameter changes

Data Source

PatentUS20250363556A1Market operation through regulation of incoming order match allocation and/or dynamic resting order match allocation priorities

Publication Date: 2025.11.27 CHICAGO MERCANTILE EXCHANGE INC

AI summary

The disclosed embodiments relate to regulation of a rate of incoming orders by buffering or otherwise batching orders together as they are received and subsequently forwarding batches of orders to a match engine for processing thereby in a manner which may equalize orders from traders having varying abilities to rapid submit orders or otherwise capitalize on market events. The disclosed embodiments further relate to prioritizing the matching of resting orders against an incoming order. In particular, the disclosed embodiments alter the priority of a given resting order to match against an incoming order, relative to other suitably matching resting orders, as a function of how long the orders have been resting on the order book.