hard · Market Microstructure

Two venues quote the same NBBO for a stock. Venue A is a continuous lit limit-order book; Venue B is a frequent-batch auction that clears all crossing orders at a uniform price every 100 milliseconds. A fast trader holds a stale-quote-sniping strategy that profits by picking off resting limit orders the instant a correlated signal moves. An analyst predicts that moving liquidity from Venue A to Venue B raises the realized (effective) spread paid by slow liquidity-demanding traders, because batching delays their fills. Assess this prediction.

1. Likely wrong: frequent batch auctions convert the latency race into a price-priority competition at the clear, which curbs stale-quote sniping and tends to let liquidity providers quote tighter, lowering effective spreads for slow traders despite the fill delay
2. Likely right: the 100 ms delay forces slow traders to cross a wider book because liquidity providers widen quotes to compensate for the batch latency they themselves now bear
3. Likely right: batching removes time priority, so liquidity providers face more queue uncertainty and demand a larger spread, which the slow trader ultimately pays at the clear
4. Indeterminate: effective spread depends only on the NBBO, which is identical across venues by assumption, so the venue mechanism cannot change what slow traders pay

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