Speed Bumps

Speed bumps in Starbase API for options trading, including how aggressive orders are delayed and how market makers are protected from latency arbitrage.

Overview

All option order books in Starbase will have a fixed-length speed bump, configured to be in the 1-10 millisecond range. Any aggressive order or quote, that is, an order or quote that would immediately match, will be made pending by a fixed duration before being entered into the order book. No other member except the owner of the order or quote is informed that this order or quote is pending. Pending orders and quotes are stored in a FIFO queue. Any jitter on speed bump timing will not cause pending orders or quotes to overtake each other.

Purpose

In the presence of a speed bump, any liquidity providing member has a fixed period of time to detect if their orders or quotes are stale due to newly available information and to send in cancellations of those orders or quotes. In other words, latency arbitrage that prices in information on sub-millisecond timescales is avoided. Market makers can tighten their bid-ask spreads as a result.

As Deribit’s market will go from a sub-second latency exchange to a sub-millisecond exchange, we have deemed it necessary to protect our option market makers with a speed bump to make sure our liquidity can transition and deepen.

How Speed Bumps Work

New orders and quotes will be speed bumped if they aggress. Cancellations will never be speed bumped. For amendments, see the table below:

	Resting	Pending
Order amended to aggress	Removed from book and made pending	Made pending for speed bump duration again
Order amended to rest	Immediately amended	Immediately added to book
Quote replaced to aggress	Old quote removed and new quote made pending	Old quote removed and new quote made pending
Quote replaced to rest	Old quote removed and new quote added to book	Old quote removed and new quote added to book

Mass Quotes

Quotes can only be entered via MassQuoteRequest. Each quote in such a batch would be speed bumped individually, per side. This means that one side of the quote can immediately be added to the book, while the other side is pending.

Cancelling Pending Orders

Orders and quotes can be cancelled while pending. Starbase informs the member of pending and released orders and quotes.

Post-Only Attributes

To guarantee that trading members aiming to provide passive liquidity are not encumbered by the speed bump, Starbase has post-only-reject and post-only-amend order and quote attributes. These attributes guarantee an avoidance of the speed bump.