[harryh]

1) Sealing the bids certainly contains some information but what about, you know, the real world. Lots of things are continuing to happen in the real world that effect the value of securities. I want to incorporate as much of that information as possible into my bid so I'm gonna wait until the last possible moment to submit my bid.

2) Bid/ask spreads would increase for regular people not just market makers. If you increase the restrictions under which something can be traded that ads risk to making a trade. That will push apart spreads. The existence of market makers is orthogonal to that principal.

[logfromblammo]

Large bid/ask spreads benefit buyers and sellers if they are allowed to keep the benefit of trade trade for themselves.

If I would pay $10 to buy, and a seller would accept $8 to sell, and the clearing price is $9, we each benefit.

If The seller sells at $8.01 to a middleman, who sells at $9.99 to me, only the middleman benefits. He has captured almost the entire benefit of trade from us.

Spreads do not matter here. The buyer and seller agree to trust a third party cartel enforcer to keep their trade information secret for the express purpose of excluding arbitrageurs. They do this because they can then get higher prices for what they sell, and lower prices for what they buy.

If the earnings report is scheduled to be released in the middle of an auction interval, yes, you might want to wait before using the system. But you might not care. Your numbers might be based upon research rather than speculation. This system is designed to be more friendly to the people who trade based on what the goods at hand are worth to them, rather than how much money they can make speculating on movements in the price. That's the whole point.

Your objections seem to be that the people who make a lot of money in the current system can't do that as easily here. Again, that's the point. As I see it, the people making the most money are providing the least value, while also trying to pretend that no one could live without them.

What if they could all be replaced by a very short shell script?

[harryh]

> If I would pay $10 to buy, and a seller would accept $8 to sell, and the clearing price is $9, we each benefit.

That's not how bid/ask spreads work. You have it backwards. A big spread is when the highest anyone willing to pay is $8 and the lowest anyone is willing to sell for is $10.

Large bid/ask spreads hurt both buyers and sellers because as soon as they make a trade they are already in a hole (that they hope to make up by overall movement in the security).

[logfromblammo]

That trade is not going to happen, man. That's another way of saying that everybody is already perfectly happy without trading at all.

If trade volume is zero, the auction reports the price as whatever the most desperate seller would accept. Anyone who wants to actually buy in the next interval should probably offer more than the value reported in the previous interval.

But since the trade orders are secret, you don't actually know how big the spread is. You only know how much traded at the last price. Again, you are very intently focused on something that has very little relevance to the proposed system.

You have no way of knowing what the spread is. That is intentionally hidden via a cartel arrangement to exclude arbitrageurs. No one trades unless everyone is happy with the trade. If no trades occur, everyone was already happy enough with what they have. That is not a problem that needs fixing.

[harryh]

OK, let me make a real world comparison. Imagine the market for collectibles in the pre eBay world. The market was much less efficient. It was much harder to match buyers with sellers. If you had a Ken Griffey baseball card to sell you probably couldn't get a great price because matching up with a buyer was harder. At the same time if you wanted to buy one you probably had to pay a higher price because you had to go to a special baseball card dealer. Spreads between what you could sell for and what you had to pay to buy were very large.

Then eBay comes along and the market is way more efficient. You can buy and sell with anyone in the world and it's (relatively) fast and easy! Bids go up, asks go down and spreads decrease! It's a win for everyone other than the middle men (baseball care dealers).

The faster and easier it is to trade, the smaller spreads are, the better pricing is, the less middle men make.

Your proposal would move the system back in the other direction because you're making trading slower & harding and impeding information flow between everyone. There is no market in which secrecy or slowness benefits the actual customer and not the middle men.

[logfromblammo]

You do realize that you just said that the auction site eBay made the markets more efficient than the professional trader card dealers, don't you?

[harryh]

Yes. That is exactly what I said.