Trading System Delay Logic for Market Spike Mitigation
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Solution Overview
Problem
Electronic trading systems can experience market spikes due to the rapid triggering and execution of buy or sell stop orders, leading to cascading effects that disrupt market prices and cause adverse impacts on traders, with existing solutions like trade cancellation policies being inefficient and risky for market participants.
Innovation Solution
A system and method utilizing evaluation logic, delay logic, pricing logic, and timing logic to monitor and delay order matching when prices exceed predefined thresholds, allowing for the derivation of an indicative opening price and temporary suspension of trading to prevent market spikes, enabling more stable price reflections and trader protection.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Speed
If stop orders are triggered and executed rapidly in electronic trading systems, then trading speed and efficiency are improved, but market stability deteriorates causing cascading price spikes
Solution Approach 1:
The system performs preliminary monitoring of stop order triggers and preemptively delays their execution when a price threshold is approached. The evaluation logic detects when a conditional order trigger would cause a price movement beyond a predefined threshold, and the delay logic temporarily suspends matching before the trigger executes, preventing the cascading effect before it begins
Solution Approach 2:
The patent introduces an intermediary control mechanism between the stop order trigger and the actual trade execution. The evaluation logic, delay logic, pricing logic, and timing logic act as intermediaries that monitor the triggering condition, assess whether it would exceed price thresholds, and mediate the execution timing to prevent harmful cascading effects while still allowing legitimate trades
2Stability of the object's composition
If trade cancellation policies are implemented to mitigate market spikes, then market stability is improved, but trading reliability deteriorates due to uncertainty and delayed responses
Solution Approach 1:
The system provides self-service market protection by automatically monitoring stop order triggers, evaluating potential threshold violations, and implementing delays without requiring external exchange intervention. The trading system itself services the need for stability through its built-in evaluation logic and delay logic, eliminating the need for unreliable post-trade cancellation policies
Solution Approach 2:
The system implements continuous feedback monitoring where the evaluation logic constantly watches for stop order triggers, the pricing logic calculates potential price movements, and the timing logic adjusts execution based on real-time market conditions. This feedback loop ensures reliable and consistent application of the threshold-based delay mechanism
Data Source
AI summary
A system and method for mitigating effects of a market spike caused by triggering and election of a conditional order in an automated matching system. The system includes evaluation logic which monitors conditional orders submitted to a trading engine compares a price of an order to a first predefined price range (“first range”) and delay logic which delays matching of the submitted orders when the price thereof lie outside of the first range. Pricing logic derives an opening price for use by the trading engine. Timing logic measures a time interval to delay matching of the orders until the opening price is within a predefined price range up to a maximum delay time set by a control center.