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Notes -
A good thought experiment I heard from Russ Roberts to help think about the tradeoffs involved is to consider the extreme possibilities. On one end, we could extend open market/active trading hours to be 24/7/365. On the other end, we could just have one market at one moment each day, say, everyone brings their orders at exactly noon every day, all the orders that can get filled, do, and then they go home until the next day. I don't really have all that much of a personal opinion, but it helps one think about possible tradeoffs.
A tool here would be to look at how this worked in the past, before HFT was enabled. Were things better or worse in terms of pricing?
I think the markets not functioning as effectively on weekends is pretty garbage, for instance, but we've long passed the point where HFT software can lead to major failures, not to mention the thousands of smaller ones that bugs can introduce. The capabilities of AI to analyze and make decisions with HFT capabilities is only going to make things worse.
Maybe I'm just latching onto it for the heck of it, but the fidelity of time a second provides should be slow enough to keep a human in the loop and reduce the iterations for software failure.
As I talk through it, though, I'm still unconvinced that this sort of regulation is possible. With the time horizon of a second, I have little-to-no doubt that shadow markets would develop between traders, even if explicitly outlawed.
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