Allegations of problematic activity in the Indian options market have exploded since SEBI, the Indian regulator, banned U.S. trading firm Jane Street from dealing securities, accusing it of price manipulation to profit from related derivatives trading.
Without commenting on the merits of that case, it’s clear that this news will trigger renewed scrutiny on the activities of high-volume and high-frequency trading and market-making firms. Given the inherent secrecy, inventiveness and competition among these firms, it can take time to detect new techniques, and even longer before rules are clarified and (when necessary) enforced.
At Pico, we use Corvil Analytics to monitor trading networks for misuse, particularly where low-latency dynamics are involved, providing clarity and detail on activity. We use anomaly detection to flag new behavior, enabling early investigation and understanding.
One related topic that has been getting a fair bit of attention recently is speculative triggering. I spoke on this subject at the STAC Summit in London, which led to several interesting conversations with clients and other market participants.
To me, speculative triggering is intriguing because of the innovation it inspires – it sits at the intersection of technical skill and competitive creativity that so often make the difference in high-performance trading. But the phenomenon has also raised public questions about fairness and compliance. In response, we have been working with several of our exchange customers to improve monitoring in this area.
Amid all this momentum, I thought it would be useful to take a step back and outline the basics of speculative triggering, how brokers and exchanges are responding, and how Pico is helping them meet the moment.
What Is Speculative Triggering?
Speculative triggering refers to the initiation of a trading request before all the required information is available. Traders might use early indicators, such as detecting a new market data packet, even before they’re fully serialized, to gain a latency advantage. This technique enables them to place orders slightly ahead of the competition, sometimes at the level of single-digit nanoseconds.
The downside of speculative triggering is that some of its techniques result in high levels of incomplete or corrupt network data that can interfere with other traffic. Speculative orders may be deliberately “poisoned” by corrupting packet checksums, for example. These packets travel through an exchange order entry infrastructure, causing congestion.
The Landscape of Exchange Rules
Many exchanges have introduced rules to curb this behavior. For instance, CME Group's Rule 575 and CBOE's messaging activity prohibitions specifically forbid strategies that purposefully corrupt data or submit partial messages to reduce latency. However, enforcing these rules is challenging due to the complexity of detecting abusive behavior at various network layers.
A recent example underscores the stakes: French proprietary trading firm Mosaic Finance alleged that speculative triggering allowed rivals to pre-send incomplete messages to Eurex, giving them a 3.2-nanosecond edge on the market at large*. Mosaic claims this behavior falls outside the spirit – and possibly the letter – of exchange rules, and has taken the matter to ESMA after legal challenges in Germany.
How Corvil Analytics Helps
Pico’s Corvil Analytics is uniquely positioned to assist exchanges and brokers in monitoring and enforcing trading rules related to speculative triggering. Our solution offers comprehensive visibility from the physical layer to the application layer, enabling real-time detection and analysis of corrupt packets and speculative triggering activities.
Monitoring: Corvil's high-speed packet capture and real-time network analytics provide detailed insights into invalid TCP checksums, retransmissions, malformed messages, and more. Our upcoming release includes enhanced monitoring capabilities for ethernet CRC errors, enabling users to identify flows with errors and pinpoint their sources.
Baselining and Anomaly Detection: Corvil's machine learning algorithms establish baseline levels of CRC errors and alert on deviations. This proactive approach helps detect unusual behaviors, such as increased CRC errors, which could indicate failing network components or potentially abusive trading practices.
Packet Forensics: Corvil's complete packet capture and analysis capabilities enable forensic investigations into corrupt packets. Users can identify top talkers, conversations, and microbursts, providing a comprehensive view of market access behaviors. Conversations can be backed up by concrete data.
Benefits for Exchange Customers and Brokers
Exchange customers benefit from Corvil Analytics’ granular visibility and actionable insights, enabling a level playing field for all participants. Brokers can monitor their systems and provide access to clients to ensure compliance with trading rules and maintain market integrity.
While speculative triggering presents challenges for market fairness and compliance, Pico’s Corvil Analytics empowers exchanges and brokers to detect, analyze, and address these behaviors effectively. By leveraging our comprehensive monitoring and forensic capabilities, exchanges can ensure that trading activities adhere to their rules, thereby maintaining a fair and transparent trading environment.
If you would like to discuss speculative triggering or learn more about Corvil’s product capabilities in this area, contact us.