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Comment by minimax | Hacker News Reader

I thought you were making the argument that reducing tick sizes would reduce the amount of effort put into reducing latency (or reducing the overall amount of prop HFT volume), but I guess I was wrong about that. The idea that reducing tick sizes would ultimately reduce market maker risk by making certain quoting strategies less viable is interesting.

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I think ultimately I'm just not being clear about something I'm not certain of in any case, but a better restatement of my position might be:

"Having some participants whose primary competitive edge is speed is not in and of itself bad, but speed advantages tend to consolidate around a few natural monopolies, which is. So if we could add something else into the mix that allows for other participants to compete outside of those monopolies, that is good. Dramatically reduced tick sizes would do that, would at times make the spreads smaller, and might even make market making less risky systematically and doesn't seem to have the downsides of other options proposed".

Do you think there are monopolies in electronic market making? I think there are tons of firms out there trying to be good at it in different asset classes, and a few that are really good at it in lots of asset classes. I'm not sure it looks like "a few natural monopolies."

I don't know if we are there yet, but it certainly seems to be trending towards consolidation. I don't have any data to back that up, just my impression from around town.

Of course that could have been due to macro trends around volatility that have reversed recently as well, I suppose.

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