Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye

Financial exchanges around the world predominantly use a market design called the continuous limit order book (CLOB). Our recent research, Budish, Cramton, and Shim (2013)— henceforth, BCS—argues that this design is flawed. In a continuous-time market, every time there is new public information that has implications for security prices—every change in the price of one security that has implications for the prices of correlated securities, every company announcement, etc.—there is a race to react. On one side of the race are high-frequency trading (HFT) firms looking to “snipe” stale quotes before they are adjusted. On the other side of the race are liquidity providers—typically, other high-frequency trading firms—looking to adjust their outstanding quotes to reflect the news before they are sniped. Since the CLOB processes traders’ messages in serial—that is, one-at-a-time in order of arrival—liquidity-providing HFTs FRONTIERS OF MARKET DESIGN ‡