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16:00 - 18:00 18 November 2015

The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response

Location

Jevons Lecture Theatre | Drayton House (link Map)
30 Gordon Street | London | WC1H 0AN | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Peter Cramton, University of Maryland and European University Institute

The high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book market design that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, e.g., every tenth of a second. That is, time should be treated as discrete instead of continuous, and orders should be processed in a batch auction instead of serially. Our argument has three parts. First, we use millisecond-level direct-feed data from exchanges to document a series of stylized facts about how the continuous market works at high-frequency time horizons: (i) correlations completely break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar for how fast one has to be to capture them.


Contact

Department of Economics - Reception
020 7679 5888 | -


Links

Seminar Paper


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