3 ms·

An exchange could work just as well and provide just as much liquidity if it accepted sealed bids into a queue for one minute, then settled and showed the full

by jwatte 10y ago

An exchange could work just as well and provide just as much liquidity if it accepted sealed bids into a queue for one minute, then settled and showed the full queue, while accepting sealed bids for the next minute. HFT would no longer be a thing, and everyone would trade on more equal footing. ("One minute" is a guess. Could be right interval is 20 seconds or ten minutes or whatever... But needs to be slow enough to allow full dissemination and reasonable time for sealed bids.)

kasey_junk 10y ago
And how would that exchange handle tie breakers? Also what about cross exchange arb? You'll probably be interested in reading Eric Budish.
- jwatte 10y ago
  Everybody would see the arbitrage within the next trading cycle. So, rather than try to eliminate the arbitrage opportunity, put reaction times into a human time scale and let every actor share. Tie breaks can be fair split with cryptographically random split for the last share, for example. Yes, "all or nothing" would complicate, of it's still a necessity, but all those things are solvable, if we believe in fairness of markets and avoiding the next flash crash.
  - kasey_junk 10y ago
    Random split exchanges have been tried and are equally gamed. If your random split is based on order count companies stuff orders to gain an advantage. If it is based on qty its a pro rata market which are common. Having windowed auctions is also common. They are still latency sensitive as the entry/exit information is still subject to races. Budesh has a good paper outlining batch auctions and their advantages but it still doesn't account for the fact that cross exchange arb is still an issue.
  - eru 10y ago
    > So, rather than try to eliminate the arbitrage opportunity, put reaction times into a human time scale and let every actor share. Why? We don't need a minimum wage for market makers.
MichaelGG 10y ago
There are exchanges that operate with similar rules, like POSIT. http://www.itg.com/product/posit-3/ http://www.itg.com/product/posit-3/ But the slowness is a lot more, executing a few times a day. And you can't change your order AFAIK (and there's large random timespans). There's also complications to avoid revealing how big the buy or sell side are. As far as your suggestion, that's what I was thinking for a while when I first read about them. I don't think it works. Simply cutting over every minute doesn't help, since there'd be a race near the edge. Like eBay, there's zero point in submitting a bid until the very last (milli|micro|nano)second. It also doesn't work because other exchanges exist. For instance, suppose the interval is an hour. You submit at 0:01, then by 0:30 the price has moved on other exchanges. Obviously you'll want to change your order, and you still have time. But the price is changing on other marketplaces every nanosecond, so you're going to be changing your bids right up until 0:59.999999. Once you allow changing the order, you're back to racing. If this was the only exchange type, and they all were synchronized, it might work a bit better. But you'd run into another issue: no one would submit an order until the very last microsecond, to use all available information. There's probably more complications too; I don't really know anything about this stuff. HFT isn't a bad thing, or at least, I've not heard why it's actually bad. Other than runaway programs screwing things up. Which, I think is actually great. That big flash crash was fucking hilarious. People had sell orders in at 0.01 or market or whatever, and they executed, then they got all upset that things worked like they should!
- eru 10y ago
  HFT is only a bad thing, because it's removes bright minds from working on other problems; not because it hurts other market participants (which it doesn't---apart from being competition to other market makers). I've read some interesting proposal that removing the subpenny rule would make speed less of a concern, since it would be possible to undercut on price instead. See https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...
  - andylei 10y ago
    a lot more bright minds are working on making you click on ads than hft

by jwatte 10y ago

kasey_junk 10y ago

And how would that exchange handle tie breakers? Also what about cross exchange arb? You'll probably be interested in reading Eric Budish.

jwatte 10y ago
Everybody would see the arbitrage within the next trading cycle. So, rather than try to eliminate the arbitrage opportunity, put reaction times into a human time scale and let every actor share. Tie breaks can be fair split with cryptographically random split for the last share, for example. Yes, "all or nothing" would complicate, of it's still a necessity, but all those things are solvable, if we believe in fairness of markets and avoiding the next flash crash.
- kasey_junk 10y ago
  Random split exchanges have been tried and are equally gamed. If your random split is based on order count companies stuff orders to gain an advantage. If it is based on qty its a pro rata market which are common. Having windowed auctions is also common. They are still latency sensitive as the entry/exit information is still subject to races. Budesh has a good paper outlining batch auctions and their advantages but it still doesn't account for the fact that cross exchange arb is still an issue.
- eru 10y ago
  > So, rather than try to eliminate the arbitrage opportunity, put reaction times into a human time scale and let every actor share. Why? We don't need a minimum wage for market makers.

MichaelGG 10y ago

There are exchanges that operate with similar rules, like POSIT. http://www.itg.com/product/posit-3/ http://www.itg.com/product/posit-3/ But the slowness is a lot more, executing a few times a day. And you can't change your order AFAIK (and there's large random timespans). There's also complications to avoid revealing how big the buy or sell side are. As far as your suggestion, that's what I was thinking for a while when I first read about them. I don't think it works. Simply cutting over every minute doesn't help, since there'd be a race near the edge. Like eBay, there's zero point in submitting a bid until the very last (milli|micro|nano)second. It also doesn't work because other exchanges exist. For instance, suppose the interval is an hour. You submit at 0:01, then by 0:30 the price has moved on other exchanges. Obviously you'll want to change your order, and you still have time. But the price is changing on other marketplaces every nanosecond, so you're going to be changing your bids right up until 0:59.999999. Once you allow changing the order, you're back to racing. If this was the only exchange type, and they all were synchronized, it might work a bit better. But you'd run into another issue: no one would submit an order until the very last microsecond, to use all available information. There's probably more complications too; I don't really know anything about this stuff. HFT isn't a bad thing, or at least, I've not heard why it's actually bad. Other than runaway programs screwing things up. Which, I think is actually great. That big flash crash was fucking hilarious. People had sell orders in at 0.01 or market or whatever, and they executed, then they got all upset that things worked like they should!

eru 10y ago
HFT is only a bad thing, because it's removes bright minds from working on other problems; not because it hurts other market participants (which it doesn't---apart from being competition to other market makers). I've read some interesting proposal that removing the subpenny rule would make speed less of a concern, since it would be possible to undercut on price instead. See https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...
- andylei 10y ago
  a lot more bright minds are working on making you click on ads than hft