Category Archives: Finance

A call to periodic auction markets

Professor Budish,

I’ve read your papers on auction markets with increasing conviction that you have a fundamental understanding that when it comes to the exchange of value for value, between market participants, a human timescale might be a reasonable goal for all manner of exchanges.

I’ve long held that the speed at which equity, futures and even foreign exchange markets are executed is one which benefits no one but the exchange agents and society none at all. When it comes to trading anything, value for value, that such transfers need only ever occur at human conscious frequencies. I’m curious as to what your opinion of such a position might be.

When humans transact in any exchange, outside that of the financial markets, they do so at humans speeds. When you buy a car, it make take days or hours. When you buy a coffee, a minute perhaps. When you sell an item on eBay or Craigslist, hours to days. And even, when, as an investor, you move to purchase or sell shares in an ETF or equity, you do so with hourly, daily, if not weekly deliberation. Humans trade at human speeds.

Why so must we be told that the financial markets must transact at microsecond frequencies? Are not all of these transactions done for human purposes? What overarching body dictates that when it comes to Wall Street, that we must abandon our human heritage and be forced to do business at speeds which, frankly, only benefit Wall Street?

Your theories on auction technologies applied to markets mirrors beliefs I’ve been developing for some time, years and years. Specifically, that periodic auctions can allow fair value to be exchanged, that price discovery can be done at human understandable frequencies and that the need for technology, beyond that required to execute the auctions, record the transactions and perform the clearing, is not required.

By embracing auctions executed periodically at daily, hourly or if necessary, minutely frequencies, we can cleanse the markets of those whose sole industry is the extraction of, as you say, “rent”, from the machine that is the market exchange. Like grist from a mill, traders sap friction produced income which benefits only them. True investors, those whose intentions are to act with future purpose, have no need to feed these parasitic traders. Periodic auctions can eliminate such so called jobs in the finance sector; sending those, with no doubt high intellect, back into society where they might enjoin society benefiting occupations.

My core tenet is just this, at what cost to society does the furious frequency of the finance industry operate? What benefit, across all of society, is provided by this sector? And is it not in society’s best interest to guide the practice of exchange, value for value, toward a more reasonable frequency? Using a periodic auction, I believe, is the key.

My ideas are radical. I admit. I hope however, you might have insight that may parallel them, however slightly.

Many thanks for any reply.