alt Hacker News> I would assume TXSE would want quick access to that order flow
Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.
Matt Levine often mulls the idea of a system with a trading window that doesn't let the fastest connection to the order book win. Perhaps an order book that works at human speeds so humans can trade too (I can think of a few ways to do it - but would need modelling to try and figure what actually works). He points out that most trades are done in the last hour, so really trading only needs to occur once a day.
The issue is whether a market trading system can be designed with suitable restrictions that beats the current market design (for listed companies and for traders).
Designing markets is hard because you have to assume every player is selfish and only cooperates where it is to their benefit and will defect or cheat if the incentives of the market encourage that (Enron in the California energy markets).
Unlikely since SEC would need to approve of a different system of market trade incentives.
Edit: Personally I would like to see an exchange that was more international. I'm from New Zealand and our good businesses often list on the Australian exchange rather than the NZSX. The system of ADRs for other countries feels like a massive hack.
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> He points out that most trades are done in the last hour, so really trading only needs to occur once a day.
Presumably then the last trader has the most information, and so the game would be getting the info as late as possible and trading as late as possible, but not too late.
> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading
Wall Street (as in the sell side) is strongly incentivised to stamp out high-speed trading. It undercuts their dealer model. They have tried and failed to come up with an auction model that eliminates HFT without tradeoffs that real investors find unacceptable.
> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.
What would that look like? Periodic auctions? Certainly it could be done, I'm just trying to understand what problem might be solved, and whether the solution would be effective.
For example, even with the opening and closing auctions we have today, there can be an advantage to getting your order accepted right before the deadline. Some participants do this, most don't really (depending on the exact definition of "right before"). But the fact that some do tells me that some participants would do the same thing with periodic auctions, and at least for them latency would still be important.
If, as seems likely, latency is fundamentally important to at least some styles of trading, how do you incentivize participants to not value it?
IEX tried this to much fanfare. Turns out most participants don’t particularly care about that as a motivating factor.
> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.
Benefits of high-frequency trading:
- Increased liquidity: improves market liquidity by ensuring there are always buyers and sellers
- Tighter bid-ask spreads: High-volume trading can narrow the spread between buying and selling prices, which can lower costs for investor
- Efficient price discovery: By reacting instantly to news and other data, HFT can help incorporate new information into a stock's price more quickly.
Bit of an aside, but I really do not understand the concerns with trading speed.
I can trade at human speed now: when I want to make a trade, I put in the order and it gets executed. Speed elsewhere in the market makes it easier, not harder, for me to trade when I want to. And I don’t care who my counterparty is; that’s a fundamental feature of a stock exchange. If A is always faster than B because A is 2 racks closer to my broker in the data center… so what? How does that hurt me? Good for A.
A computer-powered trading strategy can react faster than me to news—true. But that’s fine because I don’t have to follow a breaking-news investing strategy. There are tons of others, many of which have proven to work very well.
If trades were batch processed say every 5 seconds, and randomized in the case of ties would that solve the fastest connection issue?
I suppose you could but the problem is that the liquidity would be either shit or more charitably very different to other exchanges that already do what they're supposed to do.
They could buffer a 2 second window and randomise the orders of the transactions.
Just make all positions irrevocable for at least 10 seconds after posting.
One interesting approach to this is the gas auction system in DeFi where (on Ethereum) traders bid to have their trades included first in a block, and that additional payment is burned / accretive to ETH holders. Though that turns "fastest connection" into "highest bidder" advantage.
Another approach that Aztec and some others are taking is to shield all transactions with zkSNARKs such that the intent of a transaction isn't known until it's completed. Combined with deterministic block times you could force random ordering of transactions in batches, effectively mitigating the fastest connection OR highest bidder advantage.
And Australian companies often list in the US.
Why would you create arbitrage opportunities for no reason? That’s the only thing that would happen I can see from an exchange that can’t keep up with the NBBO price, which you are obligated by law to quote regardless.
People in the finance industry will arb between digital and human markets and net a profit from it. It seems pointless to me, but perhaps I’m not fully grasping what that would do.
> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.
What would that model look like?
Suppose we trade infrequently but take orders whenever. A trade is coming up and the order book looks like this:
buy XMPL 100 shares $0.40
buy XMPL 150 shares $0.22
sell XMPL 100 shares $0.15
sell XMPL 100 shares $0.20
sell XMPL 100 shares $0.25
sell XMPL 100 shares $0.30
why would they do that? the system is designed to reward asymmetry.
"Most trades" doesn't necessarily mean "most profitable trades" ;)
Reg NMS’s Order Protection Rule (Rule 611) says you can’t trade through protected NBBO quotes, outside a few narrow exceptions. That’s the letter of the law.
The practical effect isn’t just a bit of latency. It rewires incentives. With 611 in place, the question for latency-sensitive firms becomes: what HFT tactics can I run that are 611-compatible? Without 611, the question would be: what HFT tactics actually add value for my counterparties? That’s a very different optimization.
For firms on direct feeds (often building their own synthetic NBBO), 611 doesn’t add much information. The constraint is compliance, not discovery.
Because NBBO is size-agnostic and top-of-book, anchoring execution to it lets micro-lot quotes steer outcomes. You can influence the protected price with tiny displayed size. That’s great for gamesmanship, bad for displayed depth, size-sensitive pricing, and near-touch discovery.
Also: if two informed counterparties want to trade away from the protected price to reflect size or information, 611 mostly blocks that outside limited carve-outs. We lose mutually beneficial, size-aware prints to satisfy a benchmark that ignores size.
On settlement, the uniform benchmark helps in calm markets. But it’s naïve to think that holds through a real black swan. In stress, timestamp ambiguities and fragmented data make “what was executable” contestable, and disputes spike regardless of quote protection.
In a sound market structure, the clearer (CCP or clearing broker) should carry and underwrite that tail risk—margin, default funds, capital, and enforceable rulebooks. Instead, 611 shifts accountability onto quote-protection mechanics, insulating clearers from responsibility and, perversely, amplifying systemic risk when the system most needs well-capitalized risk absorbers.