The high-frequency trading arms race: frequent batch auctions (2015)
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Re: The high-frequency trading arms race: frequent batch auctions (2015)
#2There are severe technological consequences for pushing for synthetic discrete time. Exchanges that currently execute in a serialized fashion may no longer be able to support the trading volume if the underlying platform is unable to develop batch sizes that naturally align with hardware capabilities and timings.
Put differently, I think what is going to happen is you will start stacking way more orders at each interval than you can process before the next because the wonderful CPU pipelining effects get wrecked each time you hit an arbitrary time slice boundary. I suppose you could intentionally spin the CPU instead of yielding back to the OS during these delays, but that means you are not able to process any orders that are currently arriving, so your tail ends up growing longer and longer.
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#3I was working in HFT as a dev team lead around the time of this article (2105).
I remember this was being seriously considered by one of our target exchanges (can't remember if it was Eurex or Globex).
Our main HFT trader didn't seem worried - he said that the race would just change from a race to pick off an opportunity into a race to align with any auction timeframe.
Back then, our strategies were implemented in FGPA so our response to events could be timed very accurately. Even randomly-timed rolling auctions wouldn't have posed any challenges.
Probably explains why this idea never ended up being implemented by any of the major exchanges.
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#4I was working in HFT as a dev team lead around the time of this article (2105). I remember this was being seriously considered by one of our target exchanges (can't remember if it was Eurex or Globex). Our main HFT trader didn't seem worried - he said that the race would just change from a race to pick off an opportunity into a race to align with any auction timeframe. Back then, our strategies were implemented in FG…
If your strategies were implemented in FPGA, they were probably not very complicated (considering the things you can do on a regular CPU).
Wouldn't markets function better if every participant had a reasonable amount of time to make decisions?
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#5I was working in HFT as a dev team lead around the time of this article (2105). I remember this was being seriously considered by one of our target exchanges (can't remember if it was Eurex or Globex). Our main HFT trader didn't seem worried - he said that the race would just change from a race to pick off an opportunity into a race to align with any auction timeframe. Back then, our strategies were implemented in FG…
The way I see it, HFT firms provide liquidity to the market, which is good. They do so in an automatic fasion which makes it cheaper than the past system of human traders. But they also do a speed competition which is mostly wasteful. There may be some benefit for the overall market of faster communications but it is pretty low.
All systems have waste, some more and some less. This is unavoidable. So the discussion might be more productive if it was framed like this: Which system provides more benefits with less waste? Would frequent batch auctions lead to less resources being spent on wasteful racing, and more resources performing useful services for other market particpants?
Or if we zoom out even more, the two main purposes of the market is allocating capital efficiently to businesses, and redistributing money from the working population to retired people (401k, IRA). And we can ask which market structure will make it better at these tasks?
Framed like this it becomes natural to look at the other side of equation. Instead of asking which structure would screw over HFT's the most, we can ask which structure would be most convinient for say index funds or other mutural funds. And which structure would be most convinient for the individual stock picker. We could even start to ask which structure would help HFT's provide more liquidity with less risk.
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#6I was working in HFT as a dev team lead around the time of this article (2105). I remember this was being seriously considered by one of our target exchanges (can't remember if it was Eurex or Globex). Our main HFT trader didn't seem worried - he said that the race would just change from a race to pick off an opportunity into a race to align with any auction timeframe. Back then, our strategies were implemented in FG…
If your strategies were implemented in FPGA, they were probably not very complicated (considering the things you can do on a regular CPU). Wouldn't markets function better if every participant had a reasonable amount of time to make decisions?
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Re: The high-frequency trading arms race: frequent batch auctions (2015)
#7While I was at jpmorgan I actually spent some time thinking about alternative auction structures (vs the order book model). The current trading model is ultimately a mechanization of the rules from trading happened in a literal trading floor room, and a lot of the structural issues stem from those rules treating time as infinite resolution and the speed of information propagation/light being instaneous.
There’s some interesting details about how large trades are done today that could perhaps be better reflected into some element of auction design.
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#8There are severe technological consequences for pushing for synthetic discrete time. Exchanges that currently execute in a serialized fashion may no longer be able to support the trading volume if the underlying platform is unable to develop batch sizes that naturally align with hardware capabilities and timings. Put differently, I think what is going to happen is you will start stacking way more orders at each inter…
Why would a premade queue be worse for pipelining than a random queue which you also have to modify as you process on it? Seems like a single pause per batch rather than constantly checking if the work queue has something new put in it.
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#9This type of order book is actually quite common in Europe now! It provides an interesting alternative to central limit order books and dark pools.
Around the introduction of MiFID II regulation in 2018, several exchange operators added these frequent auction books.
Cboe's period auctions book is the biggest of these by volume: https://www.cboe.com/europe/equities/trading/periodic_auctio...
In addition to Cboe, Turquoise, Goldman Sachs, UBS, Virtu and Aquis also run frequent batch auction venues: https://www.cboe.com/europe/equities/market_share/market/ven...
I actually co-wrote a paper about this at the time, and it's very rare I get a chance to talk more about it! https://jot.pm-research.com/content/13/3/5 (sadly it's paywalled)
Re: The high-frequency trading arms race: frequent batch auctions (2015)
#10There are severe technological consequences for pushing for synthetic discrete time. Exchanges that currently execute in a serialized fashion may no longer be able to support the trading volume if the underlying platform is unable to develop batch sizes that naturally align with hardware capabilities and timings. Put differently, I think what is going to happen is you will start stacking way more orders at each inter…
This hasn’t materialised as a problem (batch auctions are one on the MiFID II venue models) - some eu venues have run this model for around four years now, its definitely less widely used than other models but has a niche.