"At an event hosted by the [Chicago Mercantile Exchange] in October, Leo Melamed, one of the pioneers of Chicago's financial futures markets, called Budish's proposal a "nonstarter." He said the markets are working pretty well and there's no need to fix something that isn't broken.

Otherwise, Melamed said jokingly, "I'm going to consider going to North Korea and show them how they can become the center of finance in about three weeks."

So yeah this has been discussed and no, the powers that be like things the way they are. Go figure. This will need stronger powers to force the hand of the traders.

http://www.chicagotribune.com/business/ct-high-speed-trading...

You could hardly expect the people profiting from this to do anything except come out against it.

If you have 3 people buying at price x and 2 people selling at price x, which 2 of the 3 buyers get their purchase?

The rules for this are the "matching algorithm". In most markets this is determined in a fifo fashion. Adding a discrete time delay wouldn't change this, there would still be a race to be first into the 5 minute period.

Then forget the FIFO convention. How about a hardware random number generator?

However, this doesn't fix the problem with placing and canceling lots of orders to sway the bucket toward the end of the 5-minute window. I suppose if some could do this faster at the end of the window then others, they would still retain an advantage.

(Imagine somebody placing many orders, monitoring how many are likely to be fulfilled advantageously, and then cancelling the disadvantageous ones as close to the end of the window as possible.)

That could perhaps be solved with fees for cancelling bids or asks.

There are already fees attached with canceling large amounts of orders, and most exchanges provide less fees (or even rebates) for providing liquidity (being the order that is taken off the book) vs taking liquidity.

Then randomise rather than FIFO it. Or pro-rata it -- (an option submitted with the offer)

So A) there are lots of markets that do pro-rata matching (larger orders get priority). B) there is a very reasonable bias against non-repeatable matching algorithms in current markets.

If you did randomized matching and 1 market participant seemed to have very good "luck", how could you convince the other market participants that the fix wasn't in? You have to understand that modern markets assume the worst case when it comes to collusion, insider trading, etc. Randomized fills is the worst case scenario given those assumptions.

>there is a very reasonable bias against non-repeatable matching algorithms in current markets.

What about psuedo-random that uses the trades themselves as a source of entropy?

Perhaps publicise the random numbers used at the same time as the order is executed, together with the identifier for the particular trades in the queue.

Publishing the number would not in any way, alleviate the concern that the system was not fair. You are thinking about this problem from a mathematics stand point when the issue is a social one.

I plead guilty to approaching from a mathematics PoV. My sole intent is to overcome the tyranny of distance and exploitation of the time difference. The only people I hope to convince are other, mathematically sophisticated traders. By social do you mean the public-at-large's suspicion?

1, 1, 1, 1, 1... Can you verify if this sequence is random or not?

OK, I'm lets stipulate that I am not particularly mathematically sophisticated.

However, I thought that you had a list of numbers at least as large as the number of trades expected in the 5 minute period, then you could order the trades by shuffling the numbers. I think it would not be too taxing to determine whether the sequence over time is random enough.

That said, I'm starting to see whether that it would impossible to know whether any particular 5 minute (or maybe day's worth) of trading is random enough. Perhaps crypto can come to the rescue here. Publish lists of random numbers in advance pgp signed.

Anyway, enough of my ramblings :-)

Or add a few hundred milliseconds of random jitter to the transaction time. This would remove any advantage to low-latency traders.

This is available on exchanges today. It usually happens 2 - 5 times per day.

Because it wouldn't reward insiders.

Its amazing how similar this line of reasoning sounds to the development of democracy mode in Twitch Plays Pokemon.