"Frequent batch auctions." - The problem with regulation: once you think about how it's really going to get deployed, it's not as clear as regulators would like

New York Attorney General Endorses

 A Radical Change To The Way 

The World Trades Stocks

by LINETTE LOPEZ

This morning, New York Attorney General Eric Schneiderman declared war on high-frequency traders, or HFTs, and what he called the "fundamentally unfair – and potentially illegal – situations that give elite groups of traders early access to market-moving information at the expense of the rest of the market."

Of course stopping this activity would require major changes — not just on the part of traders but also on the part of newswires that give HFTs an early leg up on information, and exchanges like the NASDAQ and the New York Stock Exchange.

To his credit, Schneiderman went to war armed with at least one strong suggestion — one that could drive exchanges completely up a wall.

"[S]tock exchanges as well as the Securities and Exchange Commission and other regulators should review the feasibility of the recommendations recently put forward by economists at the University of Chicago School of Business – an institution renowned for its commitment to free markets," Schneiderman said Tuesday.

The recommendations he refers to are actually a radical new way to match stock buyers with sellers called "frequent batch auctions." Professors Eric Budish, Peter Cramton, and John Shim laid it out in a paper titled "The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response" [PDF] in Decemeber.

Instead of trading stocks constantly throughout the day, with this method exchanges would sell them in auctions at intervals, such as once per second or once every tenth of a second...................


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