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Imandra Formal Verification of Financial Algorithms, Progress and - PowerPoint PPT Presentation

Nov 06, 2023 •326 likes •1.02k views

Imandra Formal Verification of Financial Algorithms, Progress and Prospects Grant Olney Passmore ACL2-2017, Austin Joint work with Denis Ignatovich and our incredible team at AI AESTHETIC DESIGNED INTEGRATION WITH CARE BY Video (see

  1. Imandra Formal Verification of Financial Algorithms, Progress and Prospects Grant Olney Passmore 
 ACL2-2017, Austin Joint work with Denis Ignatovich and our incredible team at AI AESTHETIC DESIGNED INTEGRATION WITH CARE BY

  2. Video 
 (see it on http:/ /imandra.ai) The Logic of Financial Risk™ / 2

  3. Problem Financial markets have become notoriously unstable. The Logic of Financial Risk™ / 3

  4. Problem Financial markets have become notoriously unstable. Flash Crashes : systemic events characterised by non-trivial co- dependence of trading algorithms (e.g., May 2010, drop of $1tr) The Logic of Financial Risk™ / 4

  5. Problem Financial markets have become notoriously unstable. Flash Crashes : systemic events characterised by non-trivial co- dependence of trading algorithms (e.g., May 2010, drop of $1tr) Lack of Transparency : issues of misrepresentation (e.g., misleading marketing materials or regulatory fi lings) of trading algorithm behaviour (e.g., BATS/Direct Edge $14M settlement with the SEC) The Logic of Financial Risk™ / 5

  6. Problem Financial markets have become notoriously unstable. Flash Crashes : systemic events characterised by non-trivial co- dependence of trading algorithms (e.g., May 2010, drop of $1tr) Lack of Transparency : issues of misrepresentation (e.g. misleading marketing materials or regulatory fi lings) of trading algorithm behaviour (e.g., BATS/Direct Edge $14M settlement with the SEC) Glitches : trading system errors in design or implementation, o fu en causing signi fi cant losses (e.g., Knight Capital’s loss of $400M) The Logic of Financial Risk™ / 6

  7. Goals for this talk • Concepts : venue, exchange, dark pool, order book, order type (market, limit, pegged), matching logic, market microstructure, smart order router 7

  8. Goals for this talk • Concepts : venue, exchange, dark pool, order book, order type (market, limit, pegged), matching logic, market microstructure, smart order router • Regulations : Transparency, safety and fairness (Reg ATS-N), best execution (Reg NMS)

  9. Goals for this talk • Concepts : venue, exchange, dark pool, order book, order type (market, limit, pegged), matching logic, market microstructure, smart order router • Regulations : Transparency, safety and fairness (Reg ATS-N), best execution (Reg NMS) • Practice : Be able to write a spec and analyse basic regulatory properties of a trading venue’s matching logic

  10. Goals for this talk • Intuitions : • “Venue matching logics” = “ISA of the market” • Pressing need for: • venues to be bullet-proof w.r.t. safety and fairness regulations • matching logics to be formally described to regulators and market participants • matching logics to be formally analysed w.r.t. precise encodings of regulatory directives • financial mathematics (stochastic calculus) that takes precise discrete behaviour of matching logics into account

  11. The Stack of Financial Algorithms The Logic of Financial Risk™ / 11

  12. The Stack of Financial Algorithms Venues The Logic of Financial Risk™ / 12

  13. The Stack of Financial Algorithms Smart Order Routers Venues The Logic of Financial Risk™ / 13

  14. The Stack of Financial Algorithms Trading Algos Smart Order Routers Venues The Logic of Financial Risk™ / 14

  15. The Stack of Financial Algorithms Algo Containers Trading Algos Smart Order Routers Venues The Logic of Financial Risk™ / 15

  16. The Stack of Financial Algorithms Inventory Management Algo Containers Trading Algos Smart Order Routers Venues The Logic of Financial Risk™ / 16

  17. The Stack of Financial Algorithms Collateral Trading Inventory Management Algo Containers Trading Algos Smart Order Routers Venues The Logic of Financial Risk™ / 17

  18. The Stack of Financial Algorithms Collateral Trading Inventory Management Algo Containers Trading Algos Smart Order Routers Venues The Logic of Financial Risk™ / 18

  19. The Stack of Financial Algorithms Collateral Trading low freq Inventory Management Algo Containers Trading Algos Smart Order Routers high freq Venues The Logic of Financial Risk™ / 19

  20. The Stack of Financial Algorithms Collateral Trading low freq Inventory Management Algo Containers Trading Algos Smart Order Routers discrete, high freq Venues nonlinear The Logic of Financial Risk™ / 20

  21. The Stack of Financial Algorithms Collateral Trading low freq Inventory Management Algo Containers continuous, Trading Algos nonlinear Smart Order Routers discrete, high freq Venues nonlinear The Logic of Financial Risk™ / 21

  22. What is a venue? The Logic of Financial Risk™ / 22

  23. What is a venue? The Logic of Financial Risk™ / 23

  24. What is a venue? The Logic of Financial Risk™ / 24

  25. What is a venue? LIT LIQUIDITY DARK LIQUIDITY The Logic of Financial Risk™ / 25

  26. Running Example: UBS ATS First place winner! 620 companies 52 countries The Logic of Financial Risk T M

  27. Running Example: UBS ATS First place winner! 620 companies 52 countries Jan, 2015: UBS fined $14M by the SEC for issues of unfairness in their dark pool design We analysed it, found more issues The Logic of Financial Risk T M

  28. Running Example: UBS ATS The Logic of Financial Risk T M

  29. Running Example: UBS ATS Let’s examine an actual regulatory disclosure 
 (esp. Sec 4.1) The Logic of Financial Risk T M

  30. What is Imandra? • Programming language • Mathematical logic • Reasoning engine 
 The Logic of Financial Risk T M

  31. What is Imandra? Automated Reasoning + • Programming language • Mathematical logic • Reasoning engine 
 • First-class counterexamples • Nonlinear + SE decomposition • Proof automation for various financial regulations • Test suite generation • Documentation generation 
 The Logic of Financial Risk T M

  32. What does a venue do? • maintain an order book • process incoming orders • match orders (‘trade’!) • send ` fills ’ • route orders away (`best-ex’) • report on market activity …all according to a (precisely?) defined ‘spec’ 
 …while obeying many complex regulations The Logic of Financial Risk™ / 32

  33. What is an order book? The Logic of Financial Risk™ / 33

  34. What is an order book? The Logic of Financial Risk™ / 34

  35. What is an order book? at each discrete time-step, 
 the book is sorted. The Logic of Financial Risk™ / 35

  36. What is an order book? how is it sorted? The Logic of Financial Risk™ / 36

  37. What is an order book? how is it sorted? VERY COMPLEX ANSWER! The Logic of Financial Risk™ / 37

  38. What is an order book? how is it sorted? INTUITION: 
 Price/Time Priority The Logic of Financial Risk™ / 38

  39. What is an order book? how is it sorted? INTUITION: 
 Price/Time Priority REALITY: 
 Let’s see! The Logic of Financial Risk™ / 39

  40. What is an order? an instruction to • buy or sell a given security • in a specified manner , • subject to market constraints , and • order parameters . The Logic of Financial Risk™ / 40

  41. What is an order? an instruction to • buy or sell a given security • in a specified manner , • subject to market constraints , and • order parameters . “buy 100 shares of MSFT, with price at most $50” The Logic of Financial Risk™ / 41

  42. What is an order? an instruction to • buy or sell a given security • in a specified manner , • subject to market constraints , and • order parameters . “buy 100 shares of MSFT, with price at most $50” “buy 100 shares of MSFT” The Logic of Financial Risk™ / 42

  43. What is an order? The Logic of Financial Risk™ / 43

  44. What is an order type? MARKET ORDER The Logic of Financial Risk™ / 44

  45. What is an order type? MARKET ORDER LIMIT ORDER The Logic of Financial Risk™ / 45

  46. What is an order type? MARKET ORDER LIMIT ORDER ICEBERG ORDER The Logic of Financial Risk™ / 46

  47. What is an order type? MARKET ORDER LIMIT ORDER ICEBERG ORDER STOP LOSS ORDER The Logic of Financial Risk™ / 47

  48. What is an order type? The Logic of Financial Risk™ / 48

  49. What is an order type? The Logic of Financial Risk™ / 49

  50. What is an order type? The Logic of Financial Risk™ / 50

  51. Is your venue fair? Difficult questions: Is your venue fair ? - Can you prove it? - If it’s not fair, how can you fix it? - Can your collection of order-types ever - violate regulatory directives? Does your high-performance - implementation conform to your high- level design specification? Does your documentation of your order- - types truly match your implementation? How can you automate both testing and - compliance ? What is the strongest possible evidence - you can give to regulators? The Logic of Financial Risk™ / 51

  52. Formal analysis of trading venues • Analysis of safety and fairness properties of trading venues (dark pools, exchanges, etc.) • In use at top global investment banks • Principled way to manage growing order-type proliferation • Exciting developments in regulatory space (more soon…!) The Logic of Financial Risk™ / 52

  53. Running Example: UBS ATS Demo: Transitivity of order ranking The Logic of Financial Risk™ / 53

  54. Example: SIX Swiss Exchange The Logic of Financial Risk™ / 54

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