medium · Market Microstructure
A continuous limit-order-book market and a periodic frequent-batch-auction (FBA) market are otherwise identical. A latency-arbitrage opportunity appears when a public signal moves the efficient price, leaving stale quotes.
Which statement best captures why the FBA changes the nature of the resulting competition among fast traders?
- The FBA converts the race to be first into a uniform-price auction, so liquidity-taking snipers compete on price rather than speed and the stale-quote rent is largely competed away.
- The FBA eliminates latency arbitrage entirely, because every order submitted within a given batch interval arrives and clears simultaneously, so no timing-based information asymmetry can exist.
- The FBA shifts the advantage decisively toward liquidity providers, because batching lets them cancel their stale quotes before any fast taker can act within the clearing interval.
- The FBA increases adverse selection borne by liquidity providers, because batching delays their ability to update stale quotes while fast takers still act continuously.
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