HFT fig 3

This page collects my work related to financial market design. My best known conceptual ideas in this area are frequent batch auctions and sniping. Frequent batch auctions is a market design alternative to continuous trading on financial exchanges. Mathematically, instead of trading in continuous time as a serial process — which means that being a nanosecond faster is treated as economically meaningful by the market design — trade is in discrete time as a batch process, using auctions. Sniping refers to arbitrage that is primarily a contest in speed, also known as picking off stale quotes. Mathematically, sniping refers to arbitrage rents that arise from symmetric public information — information that is broadly disseminated to the whole market at the same time — as distinct from asymmetric private information.

On this page you will find my research papers, talks, slides, and policy writing. The best starting points for this line of work are the 2015 QJE paper “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response”, and the 2017 AEA/AFA luncheon talk, “Will the Market Fix the Market?” My most recent work in this area is:

  1. “Quantifying the High-Frequency Trading Arms Race,” recently published in the Quarterly Journal of Economics. Researchers and practitioners may find the code base used to study exchange message data and quantify HFT trading races useful for their own subsequent research.
  2. “Flow Trading.” This recent working paper extends frequent batch auctions to allow for the trade of arbitrary portfolios of financial assets. It also provides traders a natural way to trade such portfolios in flows over a period of time, which helps reduce the complexity of trading.

Selected Materials

Papers

Flow Trading

Coauthors: Peter Cramton, Albert S Kyle, Jeongmin Lee, and David Malec
American Economic Review, Revise-and-Resubmit.
[PDF] [Slides] [All Related Material]

A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market?

Coauthors: Robin Lee and John Shim
Journal of Political Economy, (2024): 132, no. 4, 1209-1246.
AEA/AFA Joint Luncheon Address, Will the Market Fix the Market?
Transcript, Will the Market Fix the Market?
Slides, Will the Market Fix the Market?
[PDF] [Slides] [All Related Material]

Quantifying the High-Frequency Trading “Arms Race”

Coauthors: Matteo Aquilina and Peter O'Neill
The Quarterly Journal of Economics, (2022): 137, no. 1, 493-564.
Winner -- WFA 2020 Two Sigma Award for Best Paper on Investment Management
Data and Code Appendix
Exchange Message Data Codebook
FCA Occasional Paper landing page with brief summary and links
[PDF] [Slides] [All Related Material]

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

Coauthors: Peter Cramton and John Shim
The Quarterly Journal of Economics, (2015): 130, no. 4, 1547-1621.
Winner- 2014 AQR Insight Award
Winner- 2015 Utah WFC Best Paper Award
SEC Chair White Speech
New York Attorney General Speech
Seminar Slides (Sept 2015)
Policy Audience Slides (FCA, Feb 2016)
AEA/AFA Joint Luncheon Address, Will the Market Fix the Market?
[PDF] [All Related Material]

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

Coauthors: Peter Cramton and John Shim
American Economic Review: Papers & Proceedings, (2014): 104, no. 5, 418-424.
[PDF] [All Related Material]

Public Talks

High-Frequency Trading and the Design of Financial Markets

a16z Seminar, July 24, 2023.
[Slides] [All Related Material]

Quantifying the High-Frequency Trading ‘Arms Race’: A new methodology and estimates

Coauthors: Matteo Aquilina and Peter O'Neill
The Microstructure Exchange, June 16, 2020.
[All Related Material]

AEA/AFA Joint Luncheon Address, Will the Market Fix the Market?

AEA / AFA Joint Luncheon Talk, Chicago, January 6, 2017.
Transcript, Will the Market Fix the Market?
[Slides] [All Related Material]

Policy Writing

Comment Letter on SEC Reg NMS Reforms Proposal

Re: Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders (Release No. 34-96494; File No. S7-30-22), January 2024.
[PDF] [All Related Material]

Discussion of ‘Would Order-by-Order Auctions be Competitive?’ at the SEC, 10th Annual Conference on Financial Market Regulation, May 2023

SEC, 10th Annual Conference on Financial Market Regulation, May 2023.
[All Related Material]

Comment Letter on SEC Retail Investor Auctions Proposal

Re: Order Competition Rule Proposal (Release No. 34-96495; File No. S7-31-22), March 2023.
Discussion of ‘Would Order-by-Order Auctions be Competitive?’ at the SEC, 10th Annual Conference on Financial Market Regulation, May 2023
[PDF] [All Related Material]

Response to ESMA’s Call for Evidence re Periodic Auctions

Response to ESMA’s Call for Evidence: “Periodic Auctions for Equity Instruments” (ESMA70-156-785), January 2019.
[PDF] [All Related Material]

Response to RFI on the Evolution of the U.S. Treasury Market Structure

Response to RFI on the Evolution of the U.S. Treasury Market Structure, Re: Notice Seeking Public Comment on the Evolution of the Treasury Market Structure (Docket No. TREAS-DO-2015-0013), April 2016.
[PDF] [All Related Material]

Comment Letter on Proposed Commission Interpretation of One Millisecond as De Minimis

Re: Proposed Commission Interpretation Regarding Automated Quotations Under Regulation NMS (Release No. 34-77407; File No. S7-03-16), April 2016.
[PDF] [All Related Material]

IEX Comment Letter

Re: Investors’ Exchange LLC Form 1 Application (Release No. 34-75925; File No. 10-222), February 2016.
[PDF] [All Related Material]

CFTC Comment Letter

Re: CFTC Concept Release — Risk Controls and System Safeguards for Automated Trading Environments, RIN 3038-AD52, February 2014.
[PDF] [All Related Material]