High-Frequency Trading and the Design of Financial Markets with Eric Budish | a16z crypto research
Source: YouTube · a16z crypto · published Sep 21, 2023 · 1:11:26
Modern financial markets have a structural flaw that enables high-frequency trading firms to profit from speed advantages, creating an inefficient arms race 0:09. Professor Eric Budish explains how continuous limit order book markets treat time as continuous and process requests serially, which allows for riskless arbitrage opportunities from public information 7:00.
Key Takeaways:
• High-frequency trading firms invest billions in speed advantages to exploit tiny arbitrage opportunities that last only milliseconds 4:22
• The continuous market design creates "sniping" opportunities where firms profit from public information not yet incorporated into prices 21:44
• Budish proposes frequent batch auctions as a solution - treating time as discrete and processing trades in batches 28:30
The research shows how market design flaws create wasteful arms races in financial markets and offers a practical solution that could benefit investors and reduce unnecessary technology expenditures 35:29.
Sources:
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First 800 characters of the transcript
all right welcome everyone let's go ahead and get started to today's uh a16z crypto research seminar very happy to introduce Eric boodish who's a professor in the business school booth at University of Chicago um Eric's a super well-known Market designer he's worked in a lot of different application domains and matching markets financial markets which is what I'll talk to some about today although even though it's motivated by traditional financial markets I think we'll see some ideas that are also useful in sort of a decentralized finance context I'm also for sort of the web 3 crowd he wrote a paper the first version I think in 2018 around the economics of security of the Bitcoin protocol and protocol also an important paper but I'll leave it to him to now start talk about high frequency …