hard · Market Microstructure mmf-core

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 millisecond batching delay forces slow traders to cross a materially wider effective book, because liquidity providers widen their quotes to compensate for the batch-interval latency risk they themselves must now bear each round.
3. Likely right: batching removes strict time priority, so liquidity providers face more queue uncertainty at each clearing round and demand a correspondingly larger spread, which the slow liquidity-demanding trader ultimately ends up paying at the uniform clear.
4. Indeterminate: effective spread depends only on the prevailing NBBO, which is stipulated to be identical across both venues by assumption, so the underlying venue matching mechanism cannot possibly change what slow traders actually end up paying on average across fills.

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