4 ms·
if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.) instead, an occasional crossing (once a day?
by joshu 11y ago
if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.)
instead, an occasional crossing (once a day? once an hour?) would provide much more "fairness" since everything happens at once, at the expense of "timeliness".
back when I worked in this industry (a decade ago) POSIT provided something a lot like this
you can't have it both ways, though.
- foobarqux 11y agoThe rest of the world is still continuous.
- JesperRavn 11y agoTheir system is not fundamentally different from discrete trading, since they have delay lines going into and out of their servers. So while everything is continuous, if you want to observe the market, then do a trade, then observe the result of that trade, etc. there is maximum rate you can do this. This is what prevents front running[0], according to my understanding. Once you submit an order, no one can react to that information within a time greater than round trip latency to the servers. The problem with crossing at discrete intervals is that it introduces new kinds of strategic considerations that make it much more complex for people to play the "game". EDIT [0] For the sake of the pedantic, I mean front running in the sense of the article at the top of this page, not the legal sense. The article defines a notion of front running that maybe not everyone agrees with, but that is what I am referring to.
- yummyfajitas 11y agoThis is what prevents front running, according to my understanding. Once you submit an order, no one can react to that information within a time greater than round trip latency to the servers. That's not correct. Front-running is the crime by which your broker trades ahead of you after you state your intent to trade. Your broker does, in fact, see your trades before they reach the market (the broker is actually the one pushing them to the market). It's mainly a crime because your broker has a fiduciary duty to act in your best interest, and because the broker occupies a privileged position as an intermediary, not because there is something inherently wrong with demand anticipation. Of course, it is correct that no one besides your broker has the physical ability to react to that information.
- JesperRavn 11y agoBut if someone, somehow, developed a legal technical means to eavesdrop on the order you sent to your broker, and traded based on that, wouldn't it be fair to say that this is, in some sense, similar to front running? That is what the article is claiming, although the information is the information available at one exchange before it reaches another. And going on with this analogy, wouldn't it be the case that we would want to prevent this eavesdropping if possible, because it has a similar effect to actual frontrunning, namely that the intermediary captures the information rents associated with your knowledge of the order you are about to submit.
- yummyfajitas 11y agoThe purpose of laws against frontrunning is to enable you to have a trusted relationship with your broker. There is no benefit to creating a trusted relationship with your adversaries. Similarly, doctor/patient confidentiality laws are there to created a trusted relationship and make you comfortable admitting to your doctor that you had unprotected sex with lots of heroin addicted hookers in sub saharan Africa and you now need all the STD tests. In contrast, passing laws against journalists reporting on who visits hookers has no such benefit.
- 11y ago