Pre-trade Risk Assessment via Packet Header Extraction
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
Current pre-trade risk systems, particularly packet sniffer systems, face latency issues and undesirable interactions with liquidity venues due to their methods of preventing erroneous orders, leading to disconnection and order cancellation scenarios, and Symbol Substitution PS systems have higher latency compared to Order Corruption PS systems.
Innovation Solution
The proposed systems and methods optimize Symbol Substitution PS systems to reduce operational latency by restructuring and analyzing data packets, utilizing the network stack protocols more efficiently, and placing critical order information within the header of the data packet, allowing for pre-trade risk assessment without buffering, thus achieving latency comparable to Order Corruption PS systems.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If Symbol Substitution PS systems use traditional packet analysis methods, then pre-trade risk assessment can be performed, but operational latency increases compared to Order Corruption PS systems
Solution Approach 1:
The patent segments the data packet into distinct portions: a header portion containing critical order information (symbol, direction, price, quantity) and a payload portion containing less time-critical data. This segmentation allows the system to extract and analyze only the essential risk assessment elements from the header without buffering or processing the entire packet, thereby reducing operational latency while maintaining assessment accuracy.
Solution Approach 2:
The patent extracts critical order information directly from the packet header before complete packet reception. By taking out and processing only the necessary fields (symbol, direction, price, quantity) from the header portion, the system performs pre-trade risk assessment without waiting for the full packet to be buffered, significantly reducing latency compared to traditional methods that analyze entire packets.
2Loss of time
If Order Corruption PS systems are used, then operational latency is reduced, but disconnection and order cancellation scenarios occur
Solution Approach 1:
The patent introduces Symbol Substitution as an intermediary mechanism between the trading system and liquidity venue. Instead of directly corrupting orders (which causes disconnections), the system substitutes symbols for orders that fail risk assessment. This intermediary approach maintains trading session stability while still preventing erroneous orders, avoiding the disconnection issues inherent in Order Corruption methods.
3Adaptability or versatility
If critical order information is placed in the payload portion of the packet, then data structure follows standard protocols, but latency increases due to buffering requirements
Solution Approach 1:
The patent moves critical order information from the traditional payload portion to the header portion of the data packet. This dimensional repositioning within the packet structure allows critical data to be accessed immediately upon packet arrival without requiring complete buffering. The header portion is processed in parallel or ahead of the payload, effectively reducing the time dimension for risk assessment while maintaining protocol compatibility.
Data Source
AI summary
Systems and methods are disclosed that provide real-time pre-trade risk assessments for multiple parties. In one embodiment, systems and methods can be configured to receive a market order data packet, wherein the market order data packet comprises order information for a market order to be made at a liquidity venue. The market order data packet comprises a header portion and a payload portion, and the header portion comprises at least a portion of the order information. An order symbol is determined based on order symbol information in the header portion. Risk parameters are retrieved associated with the order symbol. It is determined whether or not a risk threshold is exceeded based on the risk parameters and the order information. A final market order data packet is generated for transmission to the liquidity venue based on the determining whether the risk threshold is exceeded.