Frequent batch auctions and the last, slow, bleeding second of the day | FT Alphaville

Frequent batch auctions and the last, slow, bleeding second of the day

Business Wire, part of the Berkshire Hathaway empire, has decided that it has been doing nothing wrong but will stop sending corporate press releases direct to the machines of high frequency trading houses.

Another win for cage rattling by Eric Schneiderman, New York attorney-general, but a line from the FT story jumps out:

Eric Hunsader, founder of Nanex, said: “The market still has a problem. It is not closing at exactly 4pm. Trades bleed over for almost a whole second and that will affect the close because earnings are getting released at almost exactly 4pm.

A whole second. Actually, not a whole second, but almost a whole second.

Which leads to the easiest regulatory fix ever. Ask everyone to wait till 4pm, take a deep breath, then hit send on the earnings release. Or as Mr Hunsader puts it:

The best solution is to require earnings to not be released until one minute after 4pm.

That still leaves the machines searching for nano-second advantage the rest of the time, however. As the CFTC describes in a recent presentation on the topic of frequent batch auctions, the arms race is now mechanical, a function of the design of the market which is built to provide continuous trading.

Enabling the rise of the machines doesn’t come cheap, however.

The proposal is to stop this nonsense by moving from continuous trading to frequent batch auctions. To human eyes trading will be essentially continuos, but the robots will effectively gather in a room every second (or 100ms, if that seems too glacial for the financial terminators) for a brief blind auction.

Time enough to take the long way round.

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