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> your example has never happened My example would apply whenever an analyst comments on AA or whenever any polarized headlines is published about AA. > It is

by allenz 8y ago

> your example has never happened My example would apply whenever an analyst comments on AA or whenever any polarized headlines is published about AA. > It is the point of the markets to reward [information] But that's exactly what we're debating: why is updating information a couple microseconds earlier something that is valuable? Conversely, if it doesn't make the market more efficient, it shouldn't be rewarded. Since you mainly want to talk about market microstructure, how do you think a switch to batch auctions would affect the market?

kasey_junk 8y ago
I presume you are talking about Budish style batch auctions? I think it is an interesting paper but it ignores the reality of the market place, which is that there is no such thing as 'the market'. There are a collection of exchanges, spanning the globe, under many different jurisdictions offering either directly fungible symbols or things that are very tightly correlated. Even if every exchange in the world agreed to the same schedule and time interval there would be arbitrage opportunities available to 'mechanical' HFT at the time scales mentioned in that paper due to the nature of physics and global communication latencies. You'd need to increase their interval value considerably even in that highly unlikely scenario. If they did that, I'd presume that in the short term spreads would go up as the current market makers reduced their risk exposure as they figured out the new system. In the long term either the existing players would figure out their tolerances or new players would come around and things would largely settle back to where they are now. My intuition is that the games they would end up playing in that world would be largely more goofy than the fairly straight forward latency arbitrage they do now (I think it would look more like dark pools than like our current exchanges). But thats not even realistic. In any realistic scenario a batch auction exchange would exist in an eco system with other non-auction exchanges. It would still have latency based arbitrage opportunities and would largely be a non-event to the markets. HFT firms would continue to do the yeomans work of making sure the prices on it match the prices on the other exchanges. My bet is that the pricing on that exchange would largely be worse for everyone and that most customers would not care enough to make that exchange more than a curiosity. IEX had one of the best marketing plans of all time and haven't changed the market in any significant way with their goofy speed bump concept. All of that to fix something that I don't view as broken. HFT is one of the most purely Darwinian capitalist systems in the world. Margins are razor thin. I'm happy to have them invest all that money and pay for my order flow so that I can get free trading and near instant execution. Most of the major commercial players like Vanguard agree with me. That a couple of hedge fund whales don't like it doesn't bother me much.

by allenz 8y ago

kasey_junk 8y ago

I presume you are talking about Budish style batch auctions? I think it is an interesting paper but it ignores the reality of the market place, which is that there is no such thing as 'the market'. There are a collection of exchanges, spanning the globe, under many different jurisdictions offering either directly fungible symbols or things that are very tightly correlated. Even if every exchange in the world agreed to the same schedule and time interval there would be arbitrage opportunities available to 'mechanical' HFT at the time scales mentioned in that paper due to the nature of physics and global communication latencies. You'd need to increase their interval value considerably even in that highly unlikely scenario. If they did that, I'd presume that in the short term spreads would go up as the current market makers reduced their risk exposure as they figured out the new system. In the long term either the existing players would figure out their tolerances or new players would come around and things would largely settle back to where they are now. My intuition is that the games they would end up playing in that world would be largely more goofy than the fairly straight forward latency arbitrage they do now (I think it would look more like dark pools than like our current exchanges). But thats not even realistic. In any realistic scenario a batch auction exchange would exist in an eco system with other non-auction exchanges. It would still have latency based arbitrage opportunities and would largely be a non-event to the markets. HFT firms would continue to do the yeomans work of making sure the prices on it match the prices on the other exchanges. My bet is that the pricing on that exchange would largely be worse for everyone and that most customers would not care enough to make that exchange more than a curiosity. IEX had one of the best marketing plans of all time and haven't changed the market in any significant way with their goofy speed bump concept. All of that to fix something that I don't view as broken. HFT is one of the most purely Darwinian capitalist systems in the world. Margins are razor thin. I'm happy to have them invest all that money and pay for my order flow so that I can get free trading and near instant execution. Most of the major commercial players like Vanguard agree with me. That a couple of hedge fund whales don't like it doesn't bother me much.