Home » Uncategorized » Time priority is the key to fair trading

Time priority is the key to fair trading

Synthetic Assets

A true national market system would have the following property. There are clearly defined points of entry to the system: that is, when an order is placed on specific exchanges, ECNs or ATSs, they will count as part of the system. These orders are time-stamped by a perfectly synchronized process. In other words, it doesn’t matter where your point of entry is, the time-stamp on your order will put it in the correct order relative to every other part of the system.

Order matching engines are, then, required to take the time to check that time-priority is respected across the national market system as a whole.

This structure would eliminate many of the nefarious aspects of speedy trading, while at the same time allowing high-speed traders to provide liquidity within the constraints of a strictly time priority system. Speedy orders couldn’t step in front of existing orders, because time-priority would be…

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1 Comment

  1. mc says:

    I posted this comment there, so reposting here:

    “Order matching engines are, then, required to take the time to check that time-priority is respected across the national market system as a whole.”

    This won’t work due to the geographic distances. Eg., a geographically closer, but LATER timestamped order may arrive to a market center BEFORE a geographically more distant but EARLIER timestamped order.

    So, before the earlier timestamped order arrives, the later timestamped order would have already been matched and executed. This is exactly the issue caused by the fragmentation of competing market centers with disparate geographic locations. It cannot be solved as described.

    This solution would work only if there was a single order book (like futures), OR continue with multiple market centers BUT with a SINGLE geographic location for ALL centers AND a SHARED clock.

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