The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response
Peter Cramton, Eric Budish and John Shim
,
4
(
130
)
Quarterly Journal of Economics
1547-1621
November
2015
Abstract
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.