I am wondering about the whole notion of high frequency trading. Don't get me wrong, I find the challenge of high frequency trading interesting, at least mildly so from the programming point of view. But is it fair? There is clearly an asymmetry in the way that market participants get prices and quotes. Is the current bid/ask the best way to have markets? What if instead, you had no quotes whatsoever displayed, but only trades that took place. The role of the matching engine would be to match buyers and sellers, and expunge crossed and lock quotes. So if the hidden quote book were like this (I am assuming all size is 100 shares): Bids (in time preference) 4.99 5.00 5.01 5.10 4.99 Asks (in time preference) 5.00 5.00 4.99 5.05 5.03 The matching engine would look like this, and print out a trade: 4.99 5.01 4.99 5.03 5.05 Print trade at 5.00 The idea is that quotes would no longer be disseminated, only trades, and the role of the matching engine is to match two people that agree on a price at a given moment and maintain a hidden quote book. The matching would take place on aggregation of orders every five seconds. Hence reducing any speed advantages.
It's as fair as people using L2 and DOM and 1 minute ticks to get an advantage on people who only trade EOD. Fight the war you're armed for...
Sorry, but Capitalism is not about being fair. All you can expect is equal access and transparency. After that, survival of the fittest. Bob
Doing "5 second" aggregation will kill penny spreads for all but the most heavily traded issues (and possibly even on them). The easier way to accomplish the same result is to move back to nickel spreads.
you would end up having a call (IM) around market sourcing liquidity and creating the order book. You changed something that is transparent into an opaque market. Not sure why you think your approach is fairer than the current exchange markets
if your goal is to make high frequency trading easier for smaller players, removing BBO or book data is not a solution since that would eliminate HFT. if your goal is to get rid of HFT, then yeah your suggestions works but not likely since many people like seeing book and BBO data. if your goal is to find something more efficient than HFT for ensuring liquidity, that is a pretty huge topic. you should look into alternative sources like dark liquidity pools which work not unlike what you mention. if your goal is to trade in the same markets but not be susceptible to sub 5 minute pricing, choose a trading strategy that is more longer term.
Exchanges get paid on transaction fees, not on slowing things down enough for silly manual scalpers using a mouse and a DOM window to vainly attempt to catch up to the bots.
I wish they would get rid of sub-pennying, so everyone (including all MMs) had to get in line (first come first served) on the bid and ask. It seems to me this would improve things a little.