| > Because we've seen what happens when a very major market maker blows their risk configs, it is a headlines day but the market largely recovers quickly. Knight Capital, for example, was just at the threshold where they were effectively able to be bailed out. Nothing guaranteed it. Other large market makers are owned by banks and are essentially risking capital reserves. We haven't hit a scenario where a hit to one participant has had systemic effects, but that doesn't mean it isn't a risk. > It was more risky to be slow than to use a central From this and some of your other comments I see you are taking the stand that every market transaction is about pricing risk, and so talking about risk separately isn't ever a useful concept. Maybe you can say that under lots of abstraction, but it seems to make it unnecessarily difficult to communicate with people who speak of it with the normal meaning. >innovative with some of their risk controls, as I believe that it could lead to better risk controls more broadly Decentralizing risk controls in the way I mentioned is strictly worse in every metric but latency. Or at least there was no other explicit reason why we did it. >The most common response that people trot out to "fix" HFT is to introduce batch auctions. I believe that this a) won't remove the incentives to play speed games and b) will make it harder for market makers to price spreads appropriately leading to them making them more expensive. I'm not necessarily proposing batches, but a significant fraction of daily trading volume already goes through the opening and closing auctions every day. When stocks are halted and re-opened, they go through auctions as well in many exchanges, just opening right back up conceivably leads to worse pricing than the auction system with published imbalances. My point about market hours, weekends, and holidays, is that all this stuff is based more on tradition and precedent than any kind of goals. Participants that trade through microsecond latency advantages are extracting a tax on everyone else. A transaction tax takes out a lot of these opportunities, and can be used for something more productive than the waste heat result of running a bunch of spin locks in a datacenter. |
I completely disagree with this and have seen no proof of it one way or the other.
One data point that convinces me lacking any proof, is that spreads are tightest in the products with the highest competition for latency. It seems that speed is bringing the tax down not up.