3 ms·
Why would the batch auction need to be FIFO? What about something like this: 1) When opening a "new tick", release data about trades in last tick, and start ac
by Faint 12y ago
Why would the batch auction need to be FIFO? What about something like this:
1) When opening a "new tick", release data about trades in last tick, and start accepting new orders. Information about orders submitted to this tick is kept secret. Allow setting order price to practically arbitrary accuracy.
2) After tick closes, match orders in _random order_. That is, it should not matter at all on at which point in time inside this tick order arrived
3) repeat
Allowing arbitrary accuracy would help turn the competition from speed or stuffing the order book with huge number of orders to "spoof" the random matching, towards competition of just providing lower spread.
I understand that it would still advantageous to hold submitting trades until very end of the tick, to take into account as much outside information (other markets, etc.) as possible. To counter this, maybe the exact length of the tick could be randomized also.
What do you think?
- kasey_junk 12y agoSo the biggest argument against random matching (whether in batch auction or open market book orders) is that the easiest way to game it is to figure out your expected fill rate. Then you just raise your order volume such that your expected fill rate matches your risk profile. For the advantage of removing the speed advantage, you get the downside of providing advantage to people that have the loosest risk profiles and you further complicate the audit burden such that it is impossible to follow. Think of it from the perspective of a value investor that set a market order 6 months ago. Under the current system once their price becomes top of the book they have a virtual certainty of getting filled. Under a (fair) random match they have the exact same chance of getting filled as someone who literaly just put in their order.