“The only way to mitigate the negative effects of high-speed traders is to redesign a key part of how financial markets operate, according to the University of Chicago’s Eric Budish.
“Trading is now effectively non-stop, with transactions measured in millionths of a second. Budish, an associate professor of economics at the Booth School of Business, proposes to instead segment trading into thousands of auctions throughout the day, preventing the quickest firms from jumping ahead of slower ones. He argued his case last week to the Commodity Futures Trading Commission, the main U.S. derivatives regulator.
“The proposal for what Budish calls frequent batch auctions is one of the most extreme ideas for how to improve markets now dominated by automated computerized trading. The academic says it would preserve the useful function that high-frequency traders provide — generating liquidity — while eliminating their ability to take advantage of momentary mispricings and profit through pure speed.”
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“Budish presented his case last week at a panel discussion about the concept release during a meeting of the commission’s Technology Advisory Committee. The session also included presentations by Stuart Kaswell, general counsel of the Managed Funds Association, Caitlin Kline of Better Markets, and Rob Creamer, chief executive officer of Geneva Trading.
“Budish’s paper has garnered industry attention, and among the firms he’s visited is IEX Group Inc., a dark pool that discourages what it sees as the worst trading practices.”
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Read full Bloomberg article here
