What Is the Risk of a “Settlement Window Attack” in Derivatives?
A settlement window attack occurs when a malicious actor attempts to manipulate the underlying asset's price specifically during the short time window used to calculate the final settlement price. By temporarily driving the price up or down on the constituent exchanges, the attacker can influence the final settlement value to profit from a derivative position, especially if the window is too narrow or relies on insufficient data.
Glossar
Short Time Window
Definition ⎊ A short time window in trading refers to a brief period during which market conditions are highly dynamic, requiring rapid decision-making and execution.
Settlement Window Attack
Vulnerability ⎊ A Settlement Window Attack targets the specific, often brief, time interval during which derivative contracts, such as options, are finalized based on an external price feed or index value.
Settlement Window
Finality ⎊ The settlement window, within cryptocurrency derivatives, options trading, and broader financial derivatives, represents the discrete period during which the obligations arising from a contract are definitively resolved.