>If one hour's worth of information is incorporated into the securities' prices between the two sets of fills, that is a really huge amount of exposure compared to what I would expect today.
I don't think it's accurate to call what's going on today "an hour's worth of information." Not that much happens in an hour, per stock. It's more akin to an hour's worth of random walk. This is harder to argue, but I think this scheme would cause most of that random walk to disappear. Certainly whatever component of it is second order would disappear, (that is, based on signaling from the price movement itself.)
>I'm not even sure if the notion of a spread or an inside price would make much sense once everything is so illiquid.
If you think of liquidity in terms of "the chances that I can sell without having a large effect on the price of the stock" then I think this only increases liquidity. You're no longer counting on the availability of moment to moment orders on the other side of the deal. You're essentially building a smoothing function into the market.
There would be an incentive to wait for the very last moment to submit your order to such a system to maximize information for that period. However, this would be rarely useful for traders, unless there was some other automated thing, like a secondary market, that determined successful bids and asks.
I don't think it's accurate to call what's going on today "an hour's worth of information." Not that much happens in an hour, per stock. It's more akin to an hour's worth of random walk. This is harder to argue, but I think this scheme would cause most of that random walk to disappear. Certainly whatever component of it is second order would disappear, (that is, based on signaling from the price movement itself.)
>I'm not even sure if the notion of a spread or an inside price would make much sense once everything is so illiquid.
If you think of liquidity in terms of "the chances that I can sell without having a large effect on the price of the stock" then I think this only increases liquidity. You're no longer counting on the availability of moment to moment orders on the other side of the deal. You're essentially building a smoothing function into the market.