Libra: Fair Order-Matching for Electronic Financial Exchanges
This addresses fairness and manipulation issues in electronic trading markets, offering a practical solution for financial exchanges, though it is incremental as it builds on existing fair market designs.
The paper tackled the problem of ensuring temporal fairness in electronic financial exchanges, which is difficult due to infrastructure inefficiencies and manipulation attacks, and introduced Libra, a fair order-matching policy that proved more robust and reduced speed-based predatory trading in a live deployment.
While historically, economists have been primarily occupied with analyzing the behaviour of the markets, electronic trading gave rise to a new class of unprecedented problems associated with market fairness, transparency and manipulation. These problems stem from technical shortcomings that are not accounted for in the simple conceptual models used for theoretical market analysis. They, thus, call for more pragmatic market design methodologies that consider the various infrastructure complexities and their potential impact on the market procedures. First, we formally define temporal fairness and then explain why it is very difficult for order-matching policies to ensure it in continuous markets. Subsequently, we introduce a list of system requirements and evaluate existing "fair" market designs in various practical and adversarial scenarios. We conclude that they fail to retain their properties in the presence of infrastructure inefficiencies and sophisticated technical manipulation attacks. Based on these findings, we then introduce Libra, a "fair" policy that is resilient to gaming and tolerant of technical complications. Our security analysis shows that it is significantly more robust than existing designs, while Libra's deployment (in a live foreign currency exchange) validated both its considerably low impact on the operation of the market and its ability to reduce speed-based predatory trading.