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Comment by joshu | Hacker News Reader

also having worked in the space: HFT should not exist. Break up the day into segments and have a single crossing. Do it every five minutes or whatever for sufficient timeliness. the millisecond race does not make anything better for anybody except the people doing the trading.

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I think you would still end up with races, they'd just move around. IEX's "speed bump" was just marketing and didn't really matter to actual HFTs.

Plus, some of it is unavoidable if you don't have a single unified exchange. Where there's latency, there's inefficiencies, and where there's inefficiency, there's profit to be made. And competition among exchanges is healthy for the ecosystem, so I don't think we'd want to consolidate.

And lastly, HFT has consolidated so much that I don't think it's worth worrying about. Virtu literally switched sides and make most of their money on order execution. Industry-wide, HFT revenues are down like 80% over the last 5-8 years. Between wholesaling/PFOF taking non-toxic order flow off the lit exchanges, and banks finally wising up on not being pants-on-head about their order execution, it's literally just sharks in the pool now, there's not even any water.

Why is competition among exchanges a good thing? Why not a single, very regulated, exchange which serves as a neutral playing field?

Single point of failure is a simple justification right off the top of my head. What happens if you have a critical failure that brings down an exchange for several days?

As a counter I had some VW shares I couldn’t access for 6 months because they were moved to another exchange. 20 calls to the broker to find out what had even happened. Eventually I was able to sell them.

Well, your first problem was investing in VW (KIDDING!). But seriously, I usually stick to self-serve stock purchases. Was this a situation where you had to contact a human to make the buy in the first place, or was it that you bought it yourself, then VW changed up their infrastructure and inadvertently locked you out?

Shitty situation either way.

Self serve, one one of those trading sites. No human contact, until the site wouldn’t let me trade the shares. I think the exchange changed up things and I am buying from another country so communication issues etc.

That feels like a gross violation of their fiduciary responsibility. Major bummer.

What do you mean « moved to another exchange » ?

Shares are not held at an exchange.

No idea. I don’t know technically what is meant by this.

Well, technically it’s false, so nothing :)

I checked my email history on it. There isn't much but from what I can tell the exchange was changed that they were traded on but there was also a change in back-end broker and there was a delay of them moving the shares to the new back-end broker. So maybe the change of exchange wasn't the actual reason, just a coincidence.

If the NYSE went down, wouldn't most trading stop because of people being frightened about using old mismatched prices?

Besides, when has an exchange gone done for hours, let alone days? Absent intentional breaks in trading as speedbumps.

> If the NYSE went down, wouldn't most trading stop because of people being frightened about using old mismatched prices?

Why would you assume that.

Every exchange is a valid place to trade and the sip ensures you always have the correct NBBO

I assumed that some exchange provides enough volume that without it there would be worries that you aren't getting true price discovery. Isn't that a concern with low trading volume? Not that that would necessarily be true, but there would be enough concern to cause some people not to trade. And others to want to trade specifically with those kind of nervous people wouldn't because the people they expected to profit by were staying put. And then it would cascade.

Lower fees.

Also, "exchange competition" is a thing in US stocks, but not, for example, in the futures' market. And there's HFTs in futures too, so having a single exchange wouldn't "remove" HFTs (not that you'd want to).

>Virtu literally switched sides and make most of their money on order execution.

That's not true according to their filings. In their filing for 2022 Q4, I see 185m from market making, and 89m from execution.

Running the matching engine at discrete times doesn't eliminate the speed race, as that's mainly about jockeying for queue position. You could put in an auction instead, but that's just changing the rules of the game rather than eliminating the game.

But really, the key thing is that liquidity provision actually is a service -- market makers are basically selling insurance. There's money to be made doing his, so people will compete to do so. That's what the millisecond race is about. Faster trading -> less risk for the MM -> less capital needed -> lower profits acceptable. Contra what you're claiming, the race is cutting into profits, not raising them.

If you want to reduce market-maker profits, crack down on payment for order flow, and let everyone compete for a chance to trade against it.

We tried this in Taiwan. They reverted to continuous matching.

periodic auctions are common on european exchanges (pesky limits on dark pool volume)

instead of order entry + continuous matching: order entry is allowed, but no matching (like pre-open phase)

then after a random period of time the auction algo runs on the entered orders

then repeat the entire thing every second

Amazing, I just checked out your profile. I used del.icio.us religiously back in the day. Thank you!

...that's kinda entire stock exchange.

It could be all run once a day if it was just to give ability to raise funds via investment

There should be transaction fees on all trades on all exchanges that go to the government, yes I mean a tax.

Why?

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