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Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye

Author

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  • Eric Budish
  • Peter Cramton
  • John Shim

Abstract

Our recent research (Budish, Cramton, and Shim 2013) proposes frequent batch auctions—uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals—as a market design alternative to continuous-time trading in financial markets. This short paper discusses the implementation details of frequent batch auctions. We outline the process flow for frequent batch auctions, discuss a modification to the market design that accommodates market fragmentation and Reg NMS, and discuss the engineering and economic considerations relevant for determining the batch interval. Open questions are discussed throughout.

Suggested Citation

  • Eric Budish & Peter Cramton & John Shim, 2014. "Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye," American Economic Review, American Economic Association, vol. 104(5), pages 418-424, May.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:5:p:418-24
    Note: DOI: 10.1257/aer.104.5.418
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    References listed on IDEAS

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    1. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
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    1. Financial transactions taxes: FTT?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-10-26 17:22:04

    Citations

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    Cited by:

    1. Vasilios Mavroudis, 2019. "Market Manipulation as a Security Problem," Papers 1903.12458, arXiv.org.
    2. Rama Cont & Pierre Degond & Xuan Lifan, 2023. "A mathematical framework for modelling order book dynamics," Working Papers hal-03968767, HAL.
    3. Kristiaan Kerstens & Ignace Van de Woestyne, 2021. "Cost functions are nonconvex in the outputs when the technology is nonconvex: convexification is not harmless," Annals of Operations Research, Springer, vol. 305(1), pages 81-106, October.
    4. Markus Baldauf & Joshua Mollner, 2020. "High‐Frequency Trading and Market Performance," Journal of Finance, American Finance Association, vol. 75(3), pages 1495-1526, June.
    5. David Rushing Dewhurst & Michael Vincent Arnold & Colin Michael Van Oort, 2018. "Selection mechanisms affect volatility in evolving markets," Papers 1812.05657, arXiv.org, revised Apr 2019.
    6. Wang, Ming-Chang & Cheng, Lee-Young & Ko, Chien-Chuan & Chou, Pang-Ying, 2018. "Does public latency influence market quality? An analysis of pre-trade transparency at the Taiwan futures exchange," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 227-240.
    7. Luyao Zhang & Fan Zhang, 2023. "Understand Waiting Time in Transaction Fee Mechanism: An Interdisciplinary Perspective," Papers 2305.02552, arXiv.org.
    8. Frank Kelly & Elena Yudovina, 2015. "A Markov model of a limit order book: thresholds, recurrence, and trading strategies," Papers 1504.00579, arXiv.org, revised Mar 2017.
    9. Shilpa Bindu & José Pablo Chaves Ávila & Luis Olmos, 2023. "Factors Affecting Market Participant Decision Making in the Spanish Intraday Electricity Market: Auctions vs. Continuous Trading," Energies, MDPI, vol. 16(13), pages 1-23, July.
    10. Robert McLaughlin & Nir Chemaya & Dingyue Liu & Dahlia Malkhi, 2024. "CLVR Ordering of Transactions on AMMs," Papers 2408.02634, arXiv.org.
    11. Frank Kelly & Elena Yudovina, 2018. "A Markov Model of a Limit Order Book: Thresholds, Recurrence, and Trading Strategies," Mathematics of Operations Research, INFORMS, vol. 43(1), pages 181-203, February.
    12. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    13. Alangi, Somayeh Rahimi & Bjørndal, Endre & Bjørndal, Mette, 2022. "Can the European intraday market be designed as a congestion management tool?," Energy Economics, Elsevier, vol. 113(C).
    14. Bian, Siyu & Serra, Teresa & Garcia, Philip & Irwin, Scott, 2022. "New evidence on market response to public announcements in the presence of microstructure noise," European Journal of Operational Research, Elsevier, vol. 298(2), pages 785-800.
    15. Thiago W. Alves & Ionuţ Florescu & Dragoş Bozdog, 2023. "Insights on the Statistics and Market Behavior of Frequent Batch Auctions," Mathematics, MDPI, vol. 11(5), pages 1-26, March.
    16. Karsten Neuhoff & Nolan Ritter & Aymen SalahAbou-El-Enien & Philippe Vassilopoulos, 2016. "Intraday Markets for Power: Discretizing the Continuous Trading?," Working Papers EPRG 1609, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    17. Notheisen, Benedikt & Marino, Vincenzo & Englert, Daniel & Weinhardt, Christof, 2019. "Trading stocks on blocks: The quality of decentralized markets," Working Paper Series in Economics 129, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    18. Mohsen Pourpouneh & Kurt Nielsen & Omri Ross, 2020. "Automated Market Makers," IFRO Working Paper 2020/08, University of Copenhagen, Department of Food and Resource Economics.
    19. Ya‐Kai Chang & Robin K. Chou & J. Jimmy Yang, 2020. "A rare move: The effects of switching from a closing call auction to a continuous trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 308-328, March.
    20. Anabelle Couleau & Teresa Serra & Philip Garcia, 2020. "Are Corn Futures Prices Getting “Jumpy”?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 569-588, March.
    21. Eric M. Aldrich & Kristian López Vargas, 2020. "Experiments in high-frequency trading: comparing two market institutions," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 322-352, June.
    22. Eibelshäuser, Steffen & Smetak, Fabian, 2022. "Frequent batch auctions and informed trading," SAFE Working Paper Series 344, Leibniz Institute for Financial Research SAFE.
    23. Rama Cont & Pierre Degond & Lifan Xuan, 2023. "A mathematical framework for modelling order book dynamics," Papers 2302.01169, arXiv.org.
    24. Alasdair Brown & Fuyu Yang, 2015. "Adverse Selection, Speed Bumps and Asset Market Quality," University of East Anglia Applied and Financial Economics Working Paper Series 070, School of Economics, University of East Anglia, Norwich, UK..

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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