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Randomization usually doesn't work in solving such issues. But making trades execute simultaneously doesn't need to randomize. You can just give everyone a pro

Randomization usually doesn't work in solving such issues. But making trades execute simultaneously doesn't need to randomize. You can just give everyone a pro rated amount. A firm that submits large order gets more shares filled. This isn't really game able is it? If a firm quotes a price for 10x the shares, the run the risk of actually trading all the shares at that price! (There's also more complicated rules possibly, like trades only execute when there's a certain demand, or other liquidity based measures. Not sure they're good but it's an option.)

kbenson 11y ago
I'm not sure how well a pro-rated amount would work. Just because I'm willing to pay X for Y quantity of Z, doesn't mean my order makes sense if the quantity is scaled up or down, so forcing this on all market participants might have some interesting effects. Do you have other markets where this is the case, I would be interested in looking at this in a slightly less theoretical context before I felt comfortable with how the behavior would settle (not that I'm all that knowledgeable about financial markets in general). > (There's also more complicated rules possibly, like trades only execute when there's a certain demand, or other liquidity based measures. Not sure they're good but it's an option.) Well, I'm not sure any set of rules isn't able to be gamed in some manner. Larger players will have an advantage as long as rules don't specifically penalize them, as they have all the capabilities of smaller players plus extra capabilities provided by economies of scale and dedicated resources. Even when you specifically penalize specific participants to reduce "unfair" advantages, I think what generally happens is that some participants move into the niche just outside those penalty definitions, to eke some of the prior advantage in the new grey area. This seems to be the norm in almost all regulation, IMO. Not that the regulation is always useless, but you can't game a system without rules, and regulation by it's nature provides more rules to look for specific ways to exploit.
- MichaelGG 11y ago
  Just one example: http://www.itg.com/liquidity/posit/#POSIT http://www.itg.com/liquidity/posit/#POSIT Or even the NYSE: https://www.nyse.com/markets/amex-options/order-processing https://www.nyse.com/markets/amex-options/order-processing

kbenson 11y ago

I'm not sure how well a pro-rated amount would work. Just because I'm willing to pay X for Y quantity of Z, doesn't mean my order makes sense if the quantity is scaled up or down, so forcing this on all market participants might have some interesting effects. Do you have other markets where this is the case, I would be interested in looking at this in a slightly less theoretical context before I felt comfortable with how the behavior would settle (not that I'm all that knowledgeable about financial markets in general). > (There's also more complicated rules possibly, like trades only execute when there's a certain demand, or other liquidity based measures. Not sure they're good but it's an option.) Well, I'm not sure any set of rules isn't able to be gamed in some manner. Larger players will have an advantage as long as rules don't specifically penalize them, as they have all the capabilities of smaller players plus extra capabilities provided by economies of scale and dedicated resources. Even when you specifically penalize specific participants to reduce "unfair" advantages, I think what generally happens is that some participants move into the niche just outside those penalty definitions, to eke some of the prior advantage in the new grey area. This seems to be the norm in almost all regulation, IMO. Not that the regulation is always useless, but you can't game a system without rules, and regulation by it's nature provides more rules to look for specific ways to exploit.

MichaelGG 11y ago
Just one example: http://www.itg.com/liquidity/posit/#POSIT http://www.itg.com/liquidity/posit/#POSIT Or even the NYSE: https://www.nyse.com/markets/amex-options/order-processing https://www.nyse.com/markets/amex-options/order-processing