Project

Discovering anomalies in financial markets with particle physics

Project High Energy Physics Tools in Limit Order Book Analysis (HighLO) applies particle physics methods and tools to financial market data. The objective is to identify malicious trading behavior such as market manipulation, to better protect markets. Research from Project HighLO enables governments, regulators, exchanges and market participants to better understand malicious trading behaviour, its impacts and how to respond.

Background

Algorithms are increasingly taking over human trading activity on financial markets where commodities, such as wheat, corn and energy, are being traded. These algorithms act automatically and much faster. In the modern trading environment, speed has become more important and the data size of financial markets has increased tremendously. This is a challenge for regulators and researchers looking for anomalies. Where do you start when there is so much data? With the help of particle physics tools and methods, these anomalies can be identified.

Particle physics has decades of experience in storing, processing and handling big, high-speed data. There are similarities between the billions of particle collisions in CERN's particle accelerator (Large Hadron Collider; LHC) and the high-speed trading on financial markets in which multiple orders per nanosecond are placed. Most collisions in the LHC show no anomalies, but when they do, this may lead to new ground-breaking insights for physicists. Project HighLO uses similar algorithms and tools CERN uses, to identify anomalies on financial market data. When there are anomalies in financial markets, market participants, exchanges and authorities want to know what happened, how the market responded and how they should respond.

Project description

Project HighLO currently has three research pillars:

  1. Anomaly detection: The goal is to identify malicious anomalies in futures and options markets that have a high probability of being market manipulation.
  2. Energy Markets: The goal is to ensure a smoother sustainable energy transition, by understanding trading behavior of market participants and detecting market manipulation in energy markets using a holistic overview of all connected European energy markets.
  3. Agent-Based Simulations: The goal is to simulate financial markets by using the state of the art simulation software BioDynaMo – developed at CERN. This allows for safe environments to experiment and test market events and conditions.

Project HighLO is the founder of the International Expert Group on Market Manipulation (IMS Group), which is an international collaboration aiming to tackle financial market regulation challenges. IMS Group currently consists of 17 regulatory agencies from seven different countries and unions.

Results

Watch our explainer video on how particle physics can help financial markets:

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Publications