Translation from cable-news-speak: Henderschott used paper trading to estimate an upper bound on the amount of money to be made by _all arbitrageurs combined_

Translation from cable-news-speak: Henderschott used paper trading to estimate an upper bound on the amount of money to be made by _all arbitrageurs combined_ trading AAPL on BATS for one day. He assumed perfect execution as an estimation tool and this was not an error. He's not claiming that he would have made $377k, he's estimating the size of the pie. Re: the intermittent auction idea: Having an intermittent auction doesn't take speed out of the picture, but it forces traders to be really fast at the moment before the auction instead of all the time. Lots of exchanges have opening and closing auctions where we can see empirical data. Some exchanges try to solve last-moment problem by having a randomized start time for the auction: you know it will be between, e.g. 3:25 and 3:30, but not exactly when. That said, Henderschott is a really smart guy and I haven't read the paper. I'm curious to see what his suggested solution looks like. I was at a talk he gave a few years ago and someone asked him about this, and I understood that he was against the auction idea for pretty much the standard reasons. I wonder what's changed. Aside, "Latency arbitrage" is an oxymoron. Latency is more or less the defining characteristic of arbitrage. Just because we're using computers instead of carrier pigeons doesn't mean the situation is somehow changed. Saying "latency arbitrage" instead of just "arbitrage" seems like a rhetorical device to paint HFT as something new and dangerous, rather than as a continuation of stuff that has always happened. There are plenty of substantive things to debate about HFT, but using scare words doesn't improve the quality of the debate. Anybody interested in this stuff should read former high-speed trader Chris Stucchio's (yummyfajitas) awesome blog posts and HN discussion. Part 1 here: https://news.ycombinator.com/item?id=3852341 https://news.ycombinator.com/item?id=3852341