To lessen the advantage which latency arbitrageurs, such as high-frequency traders, have, two other solutions apart from frequent batch auctions have been proposed, namely speed bumps and transition zones. These two solutions specifically aim to remove the ability of high-frequency traders to front-run using “inside” information gained from securities exchanges.
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Replacing continuous time trading with frequent batch auctions substantially mitigates the advantage that latency arbitrageurs, such as high-frequency traders, enjoy. Discrete time trading reduces the number of races to the top of the order book. It does not altogether reduce the advantage latency arbitrageurs have though.
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We consider here a way to reduce the advantage which latency arbitrageurs have on public exchanges. This can be achieved by changing from continuous time trading to discrete time trading.
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Market participants can have a variety of legal competitive advantageous in public security markets. One of the more controversial ones is speed which is exploited by high-frequency traders (HFTs). Should the activities of latency arbitrageurs, such as HFTs, be curtailed or are they beneficial to markets?
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