Economics at your fingertips  

High Frequency Fairness

Guillaume Haeringer and Hayden Melton

MPRA Paper from University Library of Munich, Germany

Abstract: The emergence of high frequency trading has resulted in ‘bursts’ of orders arriving at an exchange (nearly) simultaneously, yet most electronic financial exchanges im- plement the continuous limit order book which requires processing of orders serially. Contrary to an assumption that appears throughout the economics literature, the tech- nology that performs serialization provides only constrained random serial dictatorship (RSD) in the sense that not all priority orderings of agents are possible. We provide necessary and sufficient conditions for fairness under different market conditions on orders for constrained RSD mechanisms. Our results show that exchanges relying on the current serialization technology cannot ensure fairness, including exchanges using ‘speed bumps.’ We find that specific forms of constrained RSD ensure fairness under certain assumptions about the content of those orders but that the general case nev- ertheless requires unconstrained RSD. Our results have implications for the design of trading exchanges.

Keywords: Electronic trading; limit order book; fairness; random serial dictatorship. (search for similar items in EconPapers)
JEL-codes: D47 D71 G10 (search for similar items in EconPapers)
Date: 2020-10-20
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc

Downloads: (external link) original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

Page updated 2024-03-31
Handle: RePEc:pra:mprapa:103907