[jplewicke]

One of the better proposals to fix whatever market structure issues we have is to move to "frequent batch auctions", in which a micro-auction would occur every 30 seconds or minute, which would amount to a similar thing. I'm not aware of any research that discusses whether such a system would be workable in the presence of the existing continuous trading market.

[harryh]

There is research on this. It won't work the way you hope. Here is the problem:

What happens if in a single batch you have more buy orders than sell orders at a given price (or vice versa)?

[a-dub]

One side eats up all the liquidity on the other side and the price moves appropriately in the next tick?

It would clearly have to be separate from the high frequency discrete market. (c'mon, don't call it continuous!)

[harryh]

On the side where all the orders aren't filled how do you decide who gets filled and who doesn't?

[a-dub]

At equal prices, random selection. Anything else seems like it could be games.

Could lead to some funny movements though. Value aliasing! : )

[harryh]

So lets say at tick one 1 see that only 50% of the buy orders were filled.

At tick 2 I want to buy 100 shares. But maybe I'll guess that only 50% will be filled this tick too, so maybe I should submit a buy order for 200 shares instead? This kind of game playing can lead to highly unstable outcomes.

[kasey_junk]

If you think time priority orders are viewed as unfair, think what random matching would mean. It would mean that you could put in an order 6 months ago and watch it repeatedly never get filled as your price point was hit over and over again.