It seems to me that all the markets have been doing this the wrong way. Would it now be more fair to use some kind of signed timestamp and process all transactions in the order that they originated? Given an uneven distribution of sizes it's kind of hard to fill orders in the order in which they arrived (unmatched orders are part of a normally functioning market). A large bid may require the accumulation of sell orders while smaller orders may be more easily matched. Some HF
This is a bit like an arms race. The markets will most likely have to level their own playing field. That is up to them. The markets may like high frequency trading but if more and more traders become disadvantaged they will act to level things out. They also would not like the government to step in which they are always apt to do. The government in general I think seems highly negative on high frequency trading because there is some systemic risk in systems handling large amounts of transactions at such a high rate. We have seen tremendous errors in the past and we are almost reaching the point where a firm will not be able to survive a system error or could cause a cascade effect. The question the markets and regulators always have to ask themselves is whether the market is fundamentally fair. The government has the additional duty of determining whether a market activity is detrimental to the economy of the nation involved. It is not for me to answer the question of whether this should be implemented, I am just saying that it is technically feasible to do so. As far as locating all the servers in the same place on the same length of cable, that apparently is not in the cards or you would not see the high cost specialized networks from Chicago to NYC. Steve -----Original Message----- From: joel jaeggli [mailto:joelja@bogus.com] Sent: Wednesday, August 08, 2012 9:23 AM To: Naslund, Steve Cc: nanog@nanog.org Subject: Re: raging bulls On 8/8/12 6:52 AM, Naslund, Steve wrote: trading strategies of course rely on this. Today large orders may be filled on more than one ecn at a time so the notion of central agency in clearance is also a little challenging.
Perhaps each trade could have a signed GPS tag with the absolute time on it. It would keep everyone's trades in order no matter how latent their connection to the market was. All you would have to do is introduce a
couple of seconds delay to account for the longest circuit and then take them in order. They could certainly use less expensive connections and ensure that international traders get a fair shake. it's simpler to just locate the trading platforms in the same place and give everyone the same length cable. The incentives are in the wrong place too deliberately induce delay without some externality (like a regulator) guiding behavior.
If one sees current behavior as undesirable there are other methods such as the adjustment of transaction costs that might be more effective.