| Interesting idea, but how would you deal with these issues: 1.) Randomizing who receives contentious trades will just encourage order splitting and gaming. Sure some of that can be banned, but nothing stops big firms from putting each trading group into different legal entities or other tricks. This also discourages traders from bidding their true most aggressive price. In time priority, you must, or someone else will snatch your trade. If you remove the reward, why take the risk? 2.) Being fast would still matter. Reality isn't quantized, so having access to relevant real world information or a proxy for such (trading activity in other markets or products) would still be an edge. Existing quantized trading points such as exchange auctions are still latency sensitive. 3.) The modern marketplace is interconnected. No ETF market maker will quote a tight spread if he can't confidently hedge his risk in the individual stocks. Going into a one second auction with random allocation is a lot riskier than just hitting the bid on Nasdaq, maybe paying an extra penny in the rare case when you're slow. A lot of liquidity comes from people running these arb/stat arb trades. It tightens spreads and helps keep prices in line. Why harm it? 4.) There is more to HFT success than speed and I don't think this would hurt them too much or take us back to 1997 with day traders sitting at home making big money. Virtu or some other HFT shop was the biggest trader on IEX, and they have a speed bump similar to this, just less extreme. |
2) I agree that the real world is quantized, but I think that a settlement tock to the bidding tick could be used to reduce the value of proximity. IEX actually implemented general latency with long runs of fiber, which is a really elegant fix. They couldn't make the rest of the world latent, so it's something like 700 microseconds, enough to remove colocation advantages, but only enough to solve for New York.
3) As far as I know, HFT's like to play in limit order and derivative books. It's where practices like flashing and spoofing have come from. Market orders are fraught with peril, especially if you don't know the matching rules for the exchange. As far as tightening the spread and aiding price discovery, I don't think that those two things are the same. If a security has naturally low volume, responsive high frequency trading can effectively be predatory.
4) I agree that there is more to HFT than just speed, but I view high frequency temporal arbitrage as an unnecessary market feature that provides the illusion of liquidity right up until that liquidity would truly be useful (since robots get benched when things go strange).
Granted, the temporal steps that I'm advocating here are a little provocative. The US could be solved in something like 200ms, and larger global markets, like currency exchange, are already fairly decentralized (though not as much as they used to be, as far as I know).
Either way, I don't think that NASDAQ can assure global temporal coherence, especially without controlling the entire network. Given that, it makes sense to design robust systems that don't pivot into rare modalities in exceptional cases. Just pull clock slew off the board.