medium · Market Microstructure hft

What is the primary risk this latency gap creates for a slow market maker still quoting at 50.10?

1. The slow market maker faces inventory risk from an imbalanced position, since it now holds far more shares than its desired target exposure level permits
2. The slow market maker's stale ask of 50.10 will be sniped by the HFT, who can buy at 50.05 elsewhere and sell to the market maker at 50.10, locking in a 5-cent profit
3. The slow market maker loses queue priority at the best bid and offer entirely because of the SIP's inherent delay in publishing the updated consolidated market quote
4. The HFT faces adverse selection risk from the slow market maker's supposedly superior information about the firm's upcoming order flow and pending large institutional block trades

Sign up free to see the explanation and track your rank →