This article from Chicago Booth School of Business may be of interest. "The HFT Arms Race: Frequent Batch Auctions as a Market Design Response", [67 page PDF ] by Budish, Cramton and Shim. What would Milton Friedman think?

Alex Castaldo summarizes:

In the 19th century, the Paris Bourse held two stock auctions a day: one in the  morning and one in the afternoon.  That is probably too slow a tempo for modern life, but the current continuous auction mechanism is not necessarily the best setup. The authors propose that auctions be held electronically every 1 second.  This has the effect of nullifying the effect of minor (millisecond range) speed advantages, and allows a "thicker" market in which it is not only the quickest buyer and the quickest seller who interact, but a larger group of buyers and sellers. The authors claim this would allow smaller spreads and benefit the fundamental investor at the expense (presumably) of the short term market makers and arbitrageurs, as well as suppliers of high speed communication lines.

As always with this kind of proposal, we have to watch out for unintended consequences, which may not be so easy to discern. 





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