What was wrong with open outcry? Sure, you had to physically be there, but nothing has changed - traders still cluster around exchanges to keep latency low, HFT kit still lives "on the floor", and what was once done with humans and bits of paper is now done in a far less efficient fashion with computers. Less, because the marginal benefit ends up going into the pockets of those who can afford exchange co-lo and mountains of hardware to parse FIX a tick faster than the other guy, meaning that the rest of the market ends up suffering, and not having a more efficient fill mechanism, as touted.
HFT is that asshole who takes his umbrella with him into the pit, and blocks your trades.
If anything, the solution here is to abolish algorithmic trading, and decrease tick resolution substantially, which if lengthened enough, would take C out of the question and make the entire market equally accessible to all.
I mean, seriously - does the value of Brent light sweet actually change thousands of times per second? According to the markets, yes, according to reality, where people buy futures with straddles/swaps so as to have a fixed, manageable cost, no.
The entire thing is un-necessary, and doesn't add value to humans.
What about when you factor in the artificially elevated buys and artificially depressed sells as a result of HFT?
The reset after a calculated flood-to-force-a-round-closure might even bring a compensating external benefit: a slight pause to digest the new information.
It all depends on the specific mechanism design, including choices like whether a flood can be guaranteed to land in a certain round... or might wind up as 'first in' to a subsequent round.
1) Information about other orders coming into the system 2) Information about world events that may affect stock prices
The whole point of HFT is extracting maximum information from (1) and using it to make money (supposedly from slower market participants). That is what batch auctions would remove.
Nobody minds if people make money from the second type of information - but it is many orders of magnitude less frequent (ie how many times a day are there economic releases or earnings posted)?
They are all attempting to gain an edge on correlated inter market differences.
It absolutely has nothing to do with reacting to real-world events. So if all activity were to take place at 1 second intervals (kind of like microprocessor clock) - their main advantage would go away.
It is less clear to me whether fixing just one exchange fixes both or neither.
The nuttier generalization would be to have an order book for each principal component of the covariance matrix of the market. It wouldn't work in practice for a variety of reason (least of which is that the covariance matrix is unstable, ill defined, etc) but it's a good thought experiment to understand the problem.
Another promising tactic could be the "Frequent Batch Auctions" as described in the paper referenced in this blog post:
http://johnhcochrane.blogspot.com/2014/02/budish-cramton-and...
Direct paper link: http://faculty.chicagobooth.edu/eric.budish/research/HFT-Fre...
Paper abstract:
We argue that the continuous limit order book is a flawed market design and propose that financial exchanges instead use frequent batch auctions: uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals, e.g., every 1 second. Our argument has four parts. First, we use millisecond-level direct-feed data from exchanges to show that the continuous limit order book market design does not really “work” in continuous time: market correlations completely break down at high-frequency time horizons. Second, we show that this correlation breakdown creates frequent technical arbitrage opportunities, available to whomever is fastest, which in turn creates an arms race to exploit such opportunities. Third, we develop a simple new theory model motivated by these empirical facts. The model shows that the arms race is not only socially wasteful – a prisoner’s dilemma built directly into the market design – but moreover that its cost is ultimately borne by investors via wider spreads and thinner markets. Last, we show that frequent batch auctions eliminate the arms race, both because they reduce the value of tiny speed advantages and because they transform competition on speed into competition on price. Consequently, frequent batch auctions lead to narrower spreads, deeper markets, and increased social welfare.