Market Fairness | Robust Exchange Designs | Manipulation Countermeasures

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.

The Tradescope project researches market manipulation techniques, sources of unfairness and novel exchange designs for cryptocurrency, equity and forex markets. Unlike the existing finance and legal literature, we treat market abuse as a security problem and focus on technical solutions that have the potential to significantly improve price discovery and thwart unfair practices. Our focus is on fair and robust exchange designs as well as detecting and mitigating manipulation. If you are interested in the area feel free to get in touch with us.

Tradescope is kindly supported by:


Bounded Fairness for FIFO Markets

This work focuses on the market operators’ commitment for fair treatment of all competing participants. We first discuss unbounded temporal fairness and then investigate its implementation and infrastructure requirements for exchanges. We find that these requirements can be fully met only under ideal conditions and argue that unbounded fairness in FIFO markets is unrealistic. To further support this claim, we analyse several real-world incidents and show that subtle implementation inefficiencies and technical optimizations suffice to give unfair advantages to a minority of the participants. We finally introduce, ε-fairness, a bounded definition of temporal fairness and discuss how it can be combined with non-continuous market designs to provide equal participant treatment with minimum divergence from the existing market operation.

Bounded Temporal Fairness for FIFO Financial Markets. [PDF]
Mavroudis V., 26th International Workshop on Security Protocols SPW, April 2019

Technical Market Manipulation

From outcry pits to electronic exchanges, trading has always been a very competitive field, where even the slightest “edge” could be used to gain an advantage over the rest of the market participants. However, electronic trading gave rise to a previously unseen type of manipulation that exploits minor technical details and glitches in the exchange’s infrastructure.

Our work complements these (legal and finance) research efforts and argues that these phenomena cannot be sufficiently studied without examining their technical component.

Market Manipulation as a Security Problem: Attacks and Defenses [PDF]
Mavroudis V., 12th European Workshop on Systems Security (EuroSec), March 2019

Fair Order-Matching Policies

In this work, 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 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.

Libra: Fair Order Matching for Electronic Financial Exchanges [PDF]
Mavroudis V. & Melton H., Advances in Financial Technologies 2019 (AFT), May 2019

Part of this work has been also presented at summercon. You can find our slides here.



For more information on the project, please feel free to contact us at:

[email protected]

or via post at:

Department of Computer Science
University College London
Gower Street
London WC1E 6BT