Price Validation Module for OTC Market Makers
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Solution Overview
Problem
In over-the-counter (OTC) markets, market makers face challenges in continually assessing market prices, leading to the risk of providing off-market prices, which can result in significant losses due to the lack of price validation by service providers.
Innovation Solution
A computer-implemented method and system that aggregates bid and offer prices from multiple market makers, calculates base rates, and compares new prices against these rates with a configurable tolerance to validate and filter out invalid or stale prices, ensuring only valid prices are used for trading.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If market makers provide bid and offer prices without price validation, then trading speed and operational simplicity are improved, but price accuracy and reliability deteriorate leading to significant losses
Solution Approach 1:
The system performs preliminary price validation by comparing market maker prices against aggregated market rates before trading occurs. The price validation module pre-checks bid and offer prices against dynamically updated base rates, identifying and filtering invalid prices in advance, thus preventing losses without interfering with legitimate fast trading operations.
Solution Approach 2:
The patent introduces a price validation module as an intermediary between market makers and the trading system. This module acts as a mediator that receives prices from market makers, validates them against aggregated market data, and only passes validated prices to the matching engine, thereby ensuring price accuracy while maintaining trading efficiency.
2Measurement precision
If market makers manually assess market prices continuously, then price accuracy improves, but operational complexity and time consumption increase
Solution Approach 1:
The system implements self-service price validation where the price validation module automatically aggregates rates from multiple market makers, calculates base rates, and validates incoming prices without human intervention. This automated self-validating mechanism eliminates the need for manual price assessment while maintaining high accuracy, reducing both operational complexity and time consumption.
Solution Approach 2:
The price validation module serves multiple functions: it aggregates rates from multiple market makers, calculates dynamic base rates, validates incoming prices, and filters invalid prices. This multi-functional approach consolidates what would otherwise require multiple separate systems, reducing overall system complexity while maintaining comprehensive price validation.
3Device complexity
If service providers do not implement price validation systems, then system simplicity is maintained, but financial losses from invalid prices increase significantly
Solution Approach 1:
The system implements continuous feedback loops where the price validation module constantly compares market maker prices against aggregated market rates and provides real-time validation feedback. This feedback mechanism enables the system to identify and reject invalid prices automatically, preventing financial losses while adding minimal complexity through a straightforward validate-or-reject decision process.
Data Source
AI summary
A system and method provide price validation for market makers in over the counter (OTC) markets. Specifically, the system compares a new or existing price provided by a market maker with a base rate. If the unilateral difference is less than or equal to a configurable tolerance, the price may be added to validated rates. The unilateral difference is an amount that the new bid source rate is greater than the bid base rate or an amount that the new offer source rate is less than the offer base rate. On the other hand, if the difference is more than the tolerance, the price may be ignored or removed by the system. As a result, the system provides protection against trading on invalid off-market rates or stale rates that is caused by system latency or other types of temporary anomalies.