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Next Generation Algorithmic Stability Testing Trading without disclosing your Algo IP

Both Trading & Execution algos can misbehave. When they do so they can seriously affect the proper functioning of an electronic market — a matter of increasing concern to financial regulators. No matter how carefully an investment firm has tested an algo, there is always a threat that it will go off the rails once committed to live trading, particularly if it meets extreme market conditions not experienced previously in simulated trading. How it will behave in the company of other algos is also a key concern given the effect this could have on the market.

AlgoGuard is an independent algo test service based on TraderServe’s unique orderbook emulation, antagonist algorithm and stress test technologies. The aim is to give an investment firm confidence that its algos will behave stably in live trading and that it can satisfy the regulators that it has gone to sufficient lengths to ensure that the algos will not contribute to disorderly trading conditions and striven to meet the stringent new algo testing requirements by including independent testing yet without having to disclose their algo IP.

AlgoGuard allows your algo’s orders to interact in the same order book with other antagonist algorithms and with a realistic emulation of the market but completely isolated from live trading. It examines how stable the algo’s behaviour is in normal and extreme conditions, and can also explore the algo’s disposition to contribute to the sort of emergent market disorder that can be caused by the interaction of diverse algorithms in a live order book. No amount of testing with market replays can address these concerns, but AlgoGuard can offer independent protection to help prevent going live with a vulnerable algorithm. Investment firms receive an orderbook feed from the AlgoGuard server and send their orders and cancellations exactly as in live trading. AlgoGuard tests in both normal and stressed market conditions and with and without different classes of antagonist algorithms. Its reports then provide pass/fail testing with drill-down analytics as well as independent, audit-trailed evidence of algorithm stability against documented test schedules.

AlgoGuard accepts limit and market orders and allows matching within its order book on a FIFO or Pro-Rata regime. Where published, other order types and matching rules can be added on a bespoke basis.

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