January 19, 2010
HFT stinks. I put in a limit order and someone else will be 1/100 of a penny in front of my order. If I provide liquidity someone else front runs by 1/100 of a cent and then will sell to me for a loss of 1/100 of a cent if the market moves contrary to the position but the HFT position will keep any fills if the market moves away from the order and force me to be a liquidity taker.
I would propose:
1) All trades must occur in penny increments. No 1/100 or 1/10 of a cent trading. If someone complains this is arbitrary then give the right to either party to cancel any trade that does not settle at a whole penny up to 3 days after a trade.
2) All electronic orders submitted must rest at least one second before being canceled. None of this cancel and replace in milliseconds using no human interaction.
3) All platforms should use Price (to whole a penny) and Time priority. If I provide the best priced order and leave it to the market exposed the longest then then order should be filled first before any others. No splitting of volume by aggregate liquidity. If the order is there first then it has taken more risk and provided liquidity first. A level playing field means just that. It does not mean a larger order should get x% of volume just because it joined the book a minute , 5 minutes or an hour after the first order was received. (If prorate volume fills is used there should be a cutoff period after 5 seconds, 30 seconds or 1 minute).