A large firm may run several strategies through the same clearing account. Without protection, one desk's bid can lift another desk's offer, producing a trade with no change in beneficial ownership — a wash-trade, which is prohibited regardless of intent.
Participants register an identifier and choose an instruction: cancel the resting order, cancel the aggressing order, or cancel both. The trade never prints, so no volume or position results.
Example: an automated market maker rests 10 lots bid at 4,510 while its execution algorithm sends a sell order at market. Self-match prevention cancels the resting bid before the sell can hit it, and the sell fills against the next bid at 4,509.75 instead.
Related: wash-trade, matching-algorithm, globex, market-manipulation, spoofing