The Failure of Continuous Markets

Abstract

A new model for trading equities in a multiple market environment is presented and discussed. Instead of allowing continuous trading, the model proposes using a series of calls that occur in rapid succession. The calls are coordinated across venues so that all venues execute their calls simultaneously. The model addresses concerns of adverse selection that can occur when some market participants have faster access to market events, such as quote updates or executions. The model also addresses concerns of quote stuffing and the explosion of market data caused by flashing quotes that can occur in continuous trading markets as passive orders are placed and immediately cancelled. Locked and crossed markets are also eliminated with the proposed model.