[SkipperCat]

The Miami stock exchange (MIAX) has their matching engines colocated in Equinix's NY4 data center in Secaucus NJ, much like many other exchanges. I would not be surprised if TXSE does the same.

Many trading firms already have their trading engines in that data center and I would assume TXSE would want quick access to that order flow and this might be easier if they are in NY4.

Of course, they may want to have their colo facilities in TX in their own data center, that way they can rent out space and make some extra revenue, but then they'd have to build that out.

[robocat]

> I would assume TXSE would want quick access to that order flow

Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.

Matt Levine often mulls the idea of a system with a trading window that doesn't let the fastest connection to the order book win. Perhaps an order book that works at human speeds so humans can trade too (I can think of a few ways to do it - but would need modelling to try and figure what actually works). He points out that most trades are done in the last hour, so really trading only needs to occur once a day.

The issue is whether a market trading system can be designed with suitable restrictions that beats the current market design (for listed companies and for traders).

Designing markets is hard because you have to assume every player is selfish and only cooperates where it is to their benefit and will defect or cheat if the incentives of the market encourage that (Enron in the California energy markets).

Unlikely since SEC would need to approve of a different system of market trade incentives.

Edit: Personally I would like to see an exchange that was more international. I'm from New Zealand and our good businesses often list on the Australian exchange rather than the NZSX. The system of ADRs for other countries feels like a massive hack.

[resters]

Reg NMS’s Order Protection Rule (Rule 611) says you can’t trade through protected NBBO quotes, outside a few narrow exceptions. That’s the letter of the law.

The practical effect isn’t just a bit of latency. It rewires incentives. With 611 in place, the question for latency-sensitive firms becomes: what HFT tactics can I run that are 611-compatible? Without 611, the question would be: what HFT tactics actually add value for my counterparties? That’s a very different optimization.

For firms on direct feeds (often building their own synthetic NBBO), 611 doesn’t add much information. The constraint is compliance, not discovery.

Because NBBO is size-agnostic and top-of-book, anchoring execution to it lets micro-lot quotes steer outcomes. You can influence the protected price with tiny displayed size. That’s great for gamesmanship, bad for displayed depth, size-sensitive pricing, and near-touch discovery.

Also: if two informed counterparties want to trade away from the protected price to reflect size or information, 611 mostly blocks that outside limited carve-outs. We lose mutually beneficial, size-aware prints to satisfy a benchmark that ignores size.

On settlement, the uniform benchmark helps in calm markets. But it’s naïve to think that holds through a real black swan. In stress, timestamp ambiguities and fragmented data make “what was executable” contestable, and disputes spike regardless of quote protection.

In a sound market structure, the clearer (CCP or clearing broker) should carry and underwrite that tail risk—margin, default funds, capital, and enforceable rulebooks. Instead, 611 shifts accountability onto quote-protection mechanics, insulating clearers from responsibility and, perversely, amplifying systemic risk when the system most needs well-capitalized risk absorbers.

[robertlagrant]

> He points out that most trades are done in the last hour, so really trading only needs to occur once a day.

Presumably then the last trader has the most information, and so the game would be getting the info as late as possible and trading as late as possible, but not too late.

[usefulcat]

> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.

What would that look like? Periodic auctions? Certainly it could be done, I'm just trying to understand what problem might be solved, and whether the solution would be effective.

For example, even with the opening and closing auctions we have today, there can be an advantage to getting your order accepted right before the deadline. Some participants do this, most don't really (depending on the exact definition of "right before"). But the fact that some do tells me that some participants would do the same thing with periodic auctions, and at least for them latency would still be important.

If, as seems likely, latency is fundamentally important to at least some styles of trading, how do you incentivize participants to not value it?

[JumpCrisscross]

> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading

Wall Street (as in the sell side) is strongly incentivised to stamp out high-speed trading. It undercuts their dealer model. They have tried and failed to come up with an auction model that eliminates HFT without tradeoffs that real investors find unacceptable.

[kasey_junk]

IEX tried this to much fanfare. Turns out most participants don’t particularly care about that as a motivating factor.

[quickthrowman]

Why would you create arbitrage opportunities for no reason? That’s the only thing that would happen I can see from an exchange that can’t keep up with the NBBO price, which you are obligated by law to quote regardless.

People in the finance industry will arb between digital and human markets and net a profit from it. It seems pointless to me, but perhaps I’m not fully grasping what that would do.

[AaronM]

If trades were batch processed say every 5 seconds, and randomized in the case of ties would that solve the fastest connection issue?

[snowwrestler]

Bit of an aside, but I really do not understand the concerns with trading speed.

I can trade at human speed now: when I want to make a trade, I put in the order and it gets executed. Speed elsewhere in the market makes it easier, not harder, for me to trade when I want to. And I don’t care who my counterparty is; that’s a fundamental feature of a stock exchange. If A is always faster than B because A is 2 racks closer to my broker in the data center… so what? How does that hurt me? Good for A.

A computer-powered trading strategy can react faster than me to news—true. But that’s fine because I don’t have to follow a breaking-news investing strategy. There are tons of others, many of which have proven to work very well.

[kbelder]

I'm generally of the view that the more freedom in trading the better, but there is a concern on these ultra-high-speed trades that it ultimately prioritizes only certain blessed traders, those with expensive equipment, geographical proximity, and approved partnerships.

I've thought that one fairly neutral fix would be to add a random delay to the execution time of each trade. It could be very small... like between 0 to 1 seconds. Just enough to negate the 'all or nothing' prioritizing of a slightly faster connection.

[thaumasiotes]

> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.

What would that model look like?

Suppose we trade infrequently but take orders whenever. A trade is coming up and the order book looks like this:

    buy  XMPL 100 shares $0.40
    buy  XMPL 150 shares $0.22
    sell XMPL 100 shares $0.15
    sell XMPL 100 shares $0.20
    sell XMPL 100 shares $0.25
    sell XMPL 100 shares $0.30

We can always fill the buy order for 100 shares. How much should that guy pay?

[andsoitis]

> Perhaps Texas could use a different trading model that doesn't require ultra high speed trading.

Benefits of high-frequency trading:

- Increased liquidity: improves market liquidity by ensuring there are always buyers and sellers

- Tighter bid-ask spreads: High-volume trading can narrow the spread between buying and selling prices, which can lower costs for investor

- Efficient price discovery: By reacting instantly to news and other data, HFT can help incorporate new information into a stock's price more quickly.

[mhh__]

I suppose you could but the problem is that the liquidity would be either shit or more charitably very different to other exchanges that already do what they're supposed to do.

[throwawaymaths]

Just make all positions irrevocable for at least 10 seconds after posting.

[pants2]

One interesting approach to this is the gas auction system in DeFi where (on Ethereum) traders bid to have their trades included first in a block, and that additional payment is burned / accretive to ETH holders. Though that turns "fastest connection" into "highest bidder" advantage.

Another approach that Aztec and some others are taking is to shield all transactions with zkSNARKs such that the intent of a transaction isn't known until it's completed. Combined with deterministic block times you could force random ordering of transactions in batches, effectively mitigating the fastest connection OR highest bidder advantage.

[ThinkBeat]

They could buffer a 2 second window and randomise the orders of the transactions.

[phinnaeus]

And Australian companies often list in the US.

[softwreoutthere]

why would they do that? the system is designed to reward asymmetry.

[twothreeone]

"Most trades" doesn't necessarily mean "most profitable trades" ;)

[EnderWT]

From: https://www.txse.com/trading-membership

> TXSE’s primary matching engine is located in Equinix NY6 in Secaucus, NJ, with latency equalization across NY4, NY5, and NY6. Customers outside these buildings will experience additional latency. The disaster recovery (DR) matching engine is hosted in Equinix DA11 in Dallas, TX.

> Customers may connect to DR either directly to DA11 or through TXSE infrastructure at 350 E. Cermak in Chicago. Cermak connections will have traffic backhauled to DA11 over redundant TXSE circuits. Backhaul from Cermak to the production data center is not available.

[Bluecobra]

If anything they will build a backup DC in Texas so they can hold that over NJ in case the local government starts talking about transaction taxes again. The CME is currently building a “backup” private Google Cloud datacenter in Dallas.

[chronic74939]

> The CME is currently building a “backup” private Google Cloud datacenter in Dallas.

This has been “in progress” for over 5 years now.

[sgc]

I would rather see an exchange that requires buyers to hold their shares for at least x days or weeks, and slow everything way down so that people are actually forced to make decisions based on fundamentals rather than trading based on jitters in market movement. Then the datacenter location is almost irrelevant.

[danielmarkbruce]

Who is that a value proposition for? Will they pay for it? How?

This is one of those ideas that actually makes zero sense. It's why the "long term stock exchange" has failed so miserably.

[quickthrowman]

You can construct a synthetic long or short position with options [0], so those would need to be removed as well. Options are much too useful for market participants (market makers in particular), so your idea is dead in the water.

[0] For US equity options, if you sell a put and simultaneously buy a call at the same strike price, you have a synthetic long that acts like owning 100 shares of the underlying asset (no dividends, but that’s already priced in to the options).

Buy a put and simultaneously sell a call at the same strike price and you have a synthetic short that acts like being short 100 shares of the underlying asset.

[wbl]

You don't want that unless you want to wait days to trade.

[groundzeros2015]

News happens and things change quickly. Also there is arbitrage between similar assets, and investors benefit when that arbitrage is reduced by frequent trading.

The vanguard marketing runs deep.

[hobobaggins]

If that's what you want, then just hold. The beauty of capitalism is that nobody's forcing you to buy or sell.

Be a Warren Buffet and buy for keeps, and obviously you can do very well for yourself if you choose wisely.

[sheepscreek]

I think the ‘Texas’ part in the TXSE is mainly from a business procurement pov. They’re hoping to capitalize on the recent growth in the area, which is possibly ripe for a lot of new listings. The actual electronic trading might still originate in NJ.

I don’t believe they’ll have a floor. I think they are going the NASDAQ route, unless I’m confusing them with Long Term Stock Exchange (I was researching both around the same time).

Take the above with a heap of salt. It’s part my intuition and part things I might have read on the internet (including their corporate site).

[pclmulqdq]

TXSE has also made overtures about putting live trading in New Jersey like everyone else, but they may be putting their back-end in Texas.

[jaredwiener]

They have job postings that include NYC-based network operations engineers. https://www.txse.com/meet-the-team#careers

[chrismustcode]

Couldn’t they just send some hardware down Texas to co-locate there (presuming specialist hardware) and add another deployment target for their software? Would it be that hard?

[walthamstow]

The speed of light limits fibre speed which in turn limits high-frequency trading.

Flash Boys by Michael Lewis was a fun read on the subject. One memorable quote alleged that HFT traders would "sell their grandmothers for a microsecond [of edge]"

[indoordin0saur]

The issue is the speed of light.