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Comment by osrec | Hacker News Reader

I personally feel we need to change the way exchanges operate. Too much emphasis exists on speed of execution. We must consider alternative auction formats where speed of execution is not the only criteria for matching an order, as it gives rise to masses of spam generated by a thundering herd of traders as they all try and fulfill the same opportunity.

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This may be dated info, but IEX (exchange) purposely ran longer than necessary fiber to slow down the speed of automated trading.

Did they really? It's incredible how wasteful some organizations can be in pursuit of a misguided sense of "fairness."

They did it for marketing not fairness. It added 350 mikes and some of their orders bypassed it.

Having a ‘speedbump’ was the trendy thing a bit ago in exchanges with several different ones opening with several different versions.

Still a thing, that and the tick size.

There is a full crossing auction held every time a stock is started, stopped, or restarted. You can just trade those if you want.

What do you suggest? What features would you use to give priority to a trade?

The standard response here is Budish’s auction system:

https://bfi.uchicago.edu/research/working-paper/high-frequen...

Personally I think it glosses over lots of the reality of the markets but I’m ready for country to try it to see.

What do you feel it glosses over?

In no particular order, their solution doesn't seem to deal with:

- It doesn't account for the arbitrage types that seem to bother people the most: cross-exchange arb, locality arb, regnms arb or payment for order flow.

- If the discrete time chunks are very short, it doesn't seem to solve latency arb much.

- If the discrete time chunks are very long, it defaults to pro-rata matching. We have pro-rata products already, they are not kind to the little guy.

- Most of the really weird edge cases in exchanges happen due to so called 'exotic' order types, which are really just ways to get the exchange to atomically do something for you. In the discrete auction world I'd imagine you'd have more need for complex instructions not less.

Finally, I think that the problem they are attempting to solve is fairly low priority to solve. We are operating in the lowest cost trading environment of all time. It could hardly be more fair when it comes to order execution. To throw all that out seems dumb, when there are much bigger fish to fry (such as our government bailing out one set of traders but not others).

Just wanted to say, I really like the design of your blog and your writing style. Also, there is a minor typo in the last paragraph of the IOC/DI article.

For one thing, it claims to eliminate the speed arms race by setting a sufficiently long gap between auctions, but depends on a bizarre assumption that there are 2 speeds at which information can get to the market, each at a particular cost. I suspect this would be better modeled as continuous, which would imply that tuning the auction gap merely moves the clearing price for additional information speed.

It also doesn't cover the fact that it changes common exchange revenue streams; the necessary replacements would surely affect the market. Similarly, a lot of the more complex order types would no longer make sense, which would again have market effects.

A lot of this stuff is hard to figure out, though, and trying it in the real world isn't be an obviously bad idea.

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