Frequent Batch Research Articles

Frequent batch auction versus continuous time auction under order cancellation and maker‐taker fee

AbstractWe investigate the consequences of different market designs and policies on market quality in a high‐frequency market. Based on an extensible theoretical framework, high‐frequency traders in our model can be either market makers or arbitragers, which leads to a Nash equilibrium between their utilities. We consider the optimal strategies of different market agents in various market conditions based on the equilibrium. We find frequent batch auctions benefit market liquidity but harm market volatility compared to continuous‐time auctions. Order cancellation ban harms market quality while the taker fee is beneficial. We also find that market design and policy changes are only effective in low‐latency markets. Finally, we address that the total effect of high‐frequency trading is positive, so it is vital to reap high‐frequency traders' benefits while minimising their harms in high‐frequency markets.

The market quality effects of sub-second frequent batch auctions: Evidence from dark trading restrictions

Recent European regulatory restrictions on dark trading induced an increase in sub-second frequent batch/periodic auctions (PA). We exploit this development to investigate the effects of PA on market quality. The restrictions are linked to an observable increase in PA and an economically meaningful loss of liquidity. PA is also associated with a significant decline in liquidity and informational efficiency. However, consistent with Budish et al. (2015 – The Quarterly Journal of Economics, 130, 1547), increased execution via PA leads to a decline in adverse selection costs, which underscores its potential as a trading mechanism for addressing latency arbitrage and the technological arms race.

Insights on the Statistics and Market Behavior of Frequent Batch Auctions

This paper extends previous research performed with the SHIFT financial market simulation platform. In our previous work, we show how this order-driven, distributed asynchronous, and multi-asset simulated environment is capable of reproducing known stylized facts of real continuous double auction financial markets. Using the platform, we study a pricing mechanism based on frequent batch auctions (FBA) proposed by a group of researchers from University of Chicago. We demonstrate our simulator’s capability as an environment to experiment with potential rule changes. We present the first side-by-side comparison of frequent batch auctions with a continuous double auction. We show that FBA is superior in terms of market quality measures but we also discover a potential problem in the technical implementation of FBA.

Frequent Batch Auctions vs. Continuous Trading: Evidence from Taiwan

We exploit the shift from frequent batch auctions to continuous trading at the Taiwan Stock Exchange to show that liquidity deteriorated in large-cap and efficiency significantly improved in mid-cap and small-cap after trading became continuous. Our results reveal that the migration to the continuous limit order book had heterogeneous effects across stocks. The lack of negative abnormal returns in large-cap for which both liquidity and marginally, efficiency declined, suggests investors value highly the opportunity to trade continuously. Continuous trading increased profits for fast investors that engage in liquidity provision while losses incurred by individual investors did not change significantly.

Can the European intraday market be designed as a congestion management tool?

The growth in intermittent renewable power in Europe has increased the need to trade closer to real-time. In recent years, intraday markets have been integrated across Europe, contributing to a more efficient market. On the other hand, European day-ahead and intraday markets are still based on zonal pricing, where the physical characteristics of transmission networks are only partly taken into account, and congestion problems may remain until close to real-time. In this paper, we suggest an intraday market design based on the coordinated multilateral trade (CMT) approach, using power transfer distribution factors and other network information provided by the transmission system operators, to generate profitable, but feasible, and possibly multilateral trades based on nodal bids. Profitable trades can be found by independent brokers or by having the power exchange running frequent batch auctions at discrete-time intervals. Each trade is accepted by the TSO if no violation occurs in the network, or is curtailed. If the network flow is feasible at the start of the intraday market, the procedure converges to the optimal economic dispatch. In any case, this suggestion for intraday trading, taking into account simple information about network constraints, in a procedure consistent with the functioning of the European intraday market, can help bridge the gap between the zonal day-ahead markets and the real-time constraints of the power system.

Frequent Batch Auctions vs Continuous Time Auctions Under Order Cancellation and Maker-Taker Fee

Frequent Batch Auctions vs Continuous Time Auctions Under Order Cancellation and Maker-Taker Fee

Frequent Batch Auctions and Informed Trading

Frequent Batch Auctions and Informed Trading

Latency Arbitrage and Frequent Batch Auctions

Latency Arbitrage and Frequent Batch Auctions

Abstract 4271: Standardized approach for monitoring plasma cell disorders

Abstract Multi-color flow cytometry using consensus surface markers (CD138, CD38, CD19, CD45, CD27, CD56, CD81, and CD117), intracellular kappa and lambda, as well as other auxiliary markers is routinely being used for the identification and characterization of plasma cells. Here, we describe the development of a modular 10-color plasma cell panel for immunophenotyping of the plasma cell compartment. The panel was developed as an 8-color dried backbone, which can be supplemented with 2 liquid (drop in) reagents. Lyophilized or dried reagent cocktails in a unit test format are known to drive workflow efficiency in clinical settings by eliminating the need for manual cocktailing (of reagents), and frequent batch to batch verification procedures. Longer shelf life and room temperature storage are additional appealing features for lyophilized and dried products. We have developed a dried-down 8-color plasma cell panel, which is manufactured in a single test-per-tube, ready to use format, and can be supplemented with liquid (drop in) reagents. The flexibility of being able to add 2 liquid reagents to the dried backbone provides the option of using intracellular kappa and lambda to examine clonality or using CD38-multi-epitope and/or anti-p63 (VS38c) reagent(s). The single test-per-tube format is ideally suited for MRD applications, where sample size is limited and there is a need for acquiring a large number of events for data analysis. Also, the dried reagent panel is comprised of multiple high performing polymer dyes, which are brighter than conventional dyes, and afford high resolution of the relevant cell populations. Furthermore, the dried reagent tubes have a long shelf life (12 months) and significantly enhance the workflow efficiency. Comparison of the liquid and dried versions of the 10-color plasma cell panel using peripheral blood from healthy donors (as well as control cell lines) showed similar staining patterns, comparable population statistics, and fluorochrome brightness. The dried plasma cell tube(s) were also tested on bone marrow samples from healthy and diseased subjects in conjugation with intracellular staining for kappa and lambda. Our results demonstrate that the 10-color plasma cell panel can be used for identification of the plasma cell compartment (based on CD38 & CD138 expression), assessment of aberrant marker expression (CD19, CD27, CD81, CD117, CD45, CD56) for the identification of normal and abnormal plasma cells, and examining clonality in multiple patient samples. Citation Format: Ulrika Johansson, Na Li, Suraj Saksena, Natalie Golts, Brent Gaylord. Standardized approach for monitoring plasma cell disorders [abstract]. In: Proceedings of the Annual Meeting of the American Association for Cancer Research 2020; 2020 Apr 27-28 and Jun 22-24. Philadelphia (PA): AACR; Cancer Res 2020;80(16 Suppl):Abstract nr 4271.

High‐Frequency Trading and Market Performance

ABSTRACTWe study the consequences of, and potential policy responses to, high‐frequency trading (HFT) via the tradeoff between liquidity and information production. Faster speeds facilitate HFT, with consequences for this tradeoff: Information production decreases because informed traders have less time to trade before HFTs react, but liquidity (measured by the bid‐ask spread) improves because informational asymmetries decline. HFT also pushes outcomes inside the frontier of this tradeoff. However, outcomes can be restored to the frontier by replacing the limit order book with one of two alternative mechanisms: delaying all orders except cancellations or implementing frequent batch auctions.

On Frequent Batch Auctions for Stocks

Abstract I show that frequent batch auctions for stocks have the potential to reduce the severity of stock price crashes when they occur. For a given sequence of orders from a continuous electronic limit order book market, matching orders using one-second apart batch auctions results in nearly the same trades and prices. Increasing the time interval between auctions to one minute significantly reduces the severity stock price crashes. In spite of this and other advantages pointed out in the literature, frequent batch auctions have not caught on. There is a need for carefully designed market experiments to understand why and what aspect of reality academic research may be missing.

Experiments in high-frequency trading: comparing two market institutions

We implement a laboratory financial market where traders can access costly technology that reduces communication latency with a remote exchange. In this environment, we conduct a market design study on high-frequency trading: we contrast the performance of the newly proposed frequent batch auction (FBA) against the continuous double auction (CDA), which organizes trades in most exchanges worldwide. Our evidence suggests that, relative to the CDA, the FBA exhibits (1) less predatory trading behavior, (2) lower investments in low-latency communication technology, (3) lower transaction costs, and (4) lower volatility in market spreads and liquidity. We also find that transitory shocks in the environment have substantially greater impact on market dynamics in the CDA than in the FBA.

Experiments in High-Frequency Trading: Testing the Frequent Batch Auction

We implement a laboratory financial market where traders can access costly technology that reduces communication latency with a remote exchange. In this environment, we conduct a market design study on high-frequency trading: we contrast the performance of the newly proposed Frequent Batch Auction (FBA) against the Continuous Double Auction (CDA), which organizes trades in most exchanges worldwide. Our evidence suggests that, relative to the CDA, the FBA exhibits (1) less predatory trading behavior, (2) lower investments in low-latency communication technology, (3) lower transaction costs, and (4) lower volatility in market spreads and liquidity. We also find that transitory shocks in the environment have substantially greater impact on market dynamics in the CDA than in the FBA.

Toward a fully continuous exchange

We propose a new market design for a securities exchange that matches ‘continuous scaled limit orders’. This new order type differs from standard limit orders in two ways. First, orders to buy and sell represent flows of shares over time rather than stocks of shares available for immediate purchase or sale. Second, orders are expressed as continuous piecewise linear functions relating price to quantity rather than step functions defined on a discrete grid of prices and quantities. Continuous scaled limit orders implement Fischer Black’s vision of traders limiting temporary price impact by trading gradually over time. They dramatically lessen the rents high-frequency traders earn from the current market design. The proposal is compatible with frequent batch auctions and random time delays.

A Markov Model of a Limit Order Book: Thresholds, Recurrence, and Trading Strategies

We analyze a tractable model of a limit order book on short time scales, where the dynamics are driven by stochastic fluctuations between supply and demand. We establish the existence of a limiting distribution for the highest bid, and for the lowest ask, where the limiting distributions are confined between two thresholds. We make extensive use of fluid limits to establish recurrence properties of the model. We use the model to analyze various high-frequency trading strategies, and comment on the Nash equilibria that emerge between high-frequency traders when a market in continuous time is replaced by frequent batch auctions.

A New Approach to Stock Market Execution

The Financial Markets Group of the Federal Reserve Bank of Chicago has a keen interest in frequent batch auctions as a potential tool to diminish the utility of raw speed in executing trades on electronic financial markets. The Chicago Stock Exchange has received approval from the Securities and Exchange Commission to launch an innovative variant of batch auctions, the CHX SNAP auction. This article describes the CHX SNAP auction concept in great detail. If commercially successful, the CHX SNAP auction would allow institutional traders to leave hidden resting equity orders at the CHX out of the vision of digital traders who might otherwise attempt to profit from such knowledge.

Discrete or Continuous Trading? HFT Competition and Liquidity on Batch Auction Markets

Frequent batch auction (FBA) markets do not necessarily improve liquidity relative to continuous-time trading. HFTs submit quotes that become stale if the market clears before new information becomes public, and may be sniped by other privately-informed HFTs. Less frequent auctions enhance learning by allowing for more public news: liquidity improves. For infrequent enough auctions, a frequency wall emerges as lower adverse selection is offset by lower liquidity demand by impatient traders. Beyond this wall, longer auction intervals do not improve liquidity anymore. However, higher HFT speed stimulates price competition between arbitrageurs, allowing for a lower spread.

The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response *

AbstractThe high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book market design that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, for example, every tenth of a second. That is, time should be treated as discrete instead of continuous, and orders should be processed in a batch auction instead of serially. Our argument has three parts. First, we use millisecond-level direct-feed data from exchanges to document a series of stylized facts about how the continuous market works at high-frequency time horizons: (i) correlations completely break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar for how fast one has to be to capture them. Second, we introduce a simple theory model which is motivated by and helps explain the empirical facts. The key insight is that obvious mechanical arbitrage opportunities, like those observed in the data, are built into the market design—continuous-time serial-processing implies that even symmetrically observed public information creates arbitrage rents. These rents harm liquidity provision and induce a never-ending socially wasteful arms race for speed. Last, we show that frequent batch auctions directly address the flaws of the continuous limit order book. Discrete time reduces the value of tiny speed advantages, and the auction transforms competition on speed into competition on price. Consequently, frequent batch auctions eliminate the mechanical arbitrage rents, enhance liquidity for investors, and stop the high-frequency trading arms race.

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

Our recent research (Budish, Cramton, and Shim 2013) proposes frequent batch auctions - uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals - as a market design alternative to continuous-time trading in financial markets. This short paper discusses the implementation details of frequent batch auctions. We outline the process flow for frequent batch auctions, discuss a modification to the market design that accommodates market fragmentation and Reg NMS, and discuss the engineering and economic considerations relevant for determining the batch interval. Open questions are discussed throughout.

The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response

The high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book (CLOB) that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, e.g., every tenth of a second. That is, time should be treated as discrete instead of continuous, and orders should be processed in a batch auction instead of serially. Our argument has three parts. First, we use millisecond-level direct-feed data from exchanges to document a series of stylized facts about how the CLOB market design works at high-frequency time horizons: (i) correlations completely break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar for how fast one has to be to capture them. Second, we introduce a simple theory model which is motivated by, and helps explain, the empirical facts. The key insight is that obvious mechanical arbitrage opportunities, like those observed in the data, are built into the CLOB market design – continuous-time serialprocessing implies that even symmetrically observed public information creates arbitrage rents. These rents harm liquidity provision and induce a never-ending socially-wasteful arms race for speed. Last, we show that frequent batch auctions directly address the problems caused by the CLOB. Discrete time reduces the value of tiny speed advantages, and the auction transforms competition on speed into competition on price. Consequently, frequent batch auctions eliminate the mechanical arbitrage rents, enhance liquidity for investors, and stop the high-frequency trading arms race.