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I am trying to write a world economy system for a utopia.

Can a worldwide stock exchange with only 6 price changes every day work? i.e. people can only sell or buy n-stocks every 6 hours, compared to price changes every 10ms as happens in our world?

You could queue a transaction to happen at the next exchange, and on the tock of the hour all the trades would go through.

The number 6 is so that it's on equal playing fields for people around the planet with different day and night times. Because a market works better if apples, oranges and iron and everything changes less than 10,000 times per day, in a humanly recognizable time.

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  • $\begingroup$ Well, how long would the stock exchange be opened every 6 hours? Or do you imagine it more along the lines of people placing bids/offers, etc. the whole time and every 6 hours the exchange magically works through all the bids/offers at the same instant? $\endgroup$ – dot_Sp0T May 23 '17 at 21:24
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    $\begingroup$ I feel like there would be a shadow price to stocks. People trading would exchange their queues, and a shadow authority would estimate the upcoming prices. People would then trade based on the inbetween of this window (something like how calls and puts came about). Capitalism finds a way. $\endgroup$ – Ranger May 23 '17 at 21:30
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    $\begingroup$ @comprehensible so, how do you decide which transactions are conducted first? You need a way to pair up bids and offers, etc. $\endgroup$ – dot_Sp0T May 23 '17 at 21:30
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    $\begingroup$ @NexTerren, that is exactly what would happen. People would also do side trades during the 4 hours between openings that would then be realized at "stock time." $\endgroup$ – ShadoCat May 23 '17 at 23:23
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    $\begingroup$ If your goal is to forbid algorithmic trading there are better solutions which don't run into unsolvable problems for price setting. Require that each buy or sell offer remain valid for at least 5 minutes; put a small tax on transactions (0.01% works wonders); etc. $\endgroup$ – AlexP May 24 '17 at 0:56
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Maybe, maybe not, but it probably won't get much use.

Stock exchanges are private enterprises, not government controlled. If your stock exchange runs only 6 times a day perhaps people would list their companies on one that runs 12 times a day, or constantly 24/7. Perhaps they wouldn't officially list at all and you'd get a black market for share trading.

To the people who initially sell the shares to the exchange, it doesn't matter, they just need to sell the shares to raise finance, they'll sell where they think they'll get the best price. The most investment for their company, after that the price is just an indicator of how well the company is doing.

Flash crashes and flash spikes only affect the people who play in HFT. If you research a company, see that it has a solid product, a solid chance to make a good profit and increase its value, then you buy at what you think it's worth and you keep it as a long term investment. HFT fluctuations don't bother you.

If you regulate the market to 6 trades a day, is it utopia?

Perhaps it would be simpler to just prevent the use of automated trading. Everything must be done with physical handshake between two people. If you're in New York and want to buy in London, you phone your dealer and tell him what to buy, the dealer then shouts across the room to anyone who might be selling. They shake hands and the deal is done. No more HFT, but does it really matter?

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It would fail as fast as any utopia can fail.

A discontinuity like that is not beneficial. In fact, it can be downright disastrous.

From the sound of it, you want trades within each epoch to all occur at the same price. Thus, if the price of a stock is $1, and I buy 10 shares (presumably finding a seller), it doesn't change the stock price, it merely decreases the number of shares for sale on the market at that time. You've engaged in price fixing. As a result, you could easily reach a situation where there are simply no sellers or no buyers because the fixed price is too far from the actual value people attribute to the stock.

Then, at the end of the epoch, all trades go through and we need to set a new price. But what do we set it to? If there were more sellers than buyers, we should clearly reduce the price. But do we reduce it to \$.99? \$90? \$0.50? \$0.01? We don't really have any useful information to set the price.

Alternatively, we permit people to decide what price they are willing to buy/sell the shares, and then they all get to act at the end of the epoch. If there was a buyer/seller match, then the sale goes through. Otherwise, after 6 hours, the market announces to you that you didn't actually buy/sell your stock. But how do you pair them up? Algorithms will be subject to abuse, and lots of simple algortihms simply don't work. You can't use any of the simple first-come-first-serve matching algorithms because that will instantly turn your market into an unofficial continuous shadow market with an official sweep every 6 hours.

In the end, you'd need the special kind of utopia where nobody questions why things are done the way they're done. Otherwise, you'll eventually have someone realize that the system has been made inefficient, and they'll invent a more efficient one.

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  • $\begingroup$ In our markets, some commodities trade 24/7 and some trade only in office hours, until the hammer falls. That is already inefficient because it causes panic and confusion in the pace of trading. If the trades were only open for 10 minutes every 4 hours, that would be as efficient as the current stock market? Our stock market is inefficient because it dates from the paper bonds age and newspapers, and it functions on optical fiber speeds = timing problems for all the world's trade. $\endgroup$ – com.prehensible May 24 '17 at 6:46
  • $\begingroup$ @comprehensibe efficient inefficiency $\endgroup$ – SeanJ May 24 '17 at 7:26
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    $\begingroup$ I could see very rational reasons why the government might do that; not least, to level the playing field between the pro and citizen investor. The stock market is a positive-sum game; but rapid trading is a zero-sum game. So sophisticated millisecond trading with well-connected "bots" definitely is stealing from the less sophisticated. It's the kind of thing I could see even Europe disallowing for that reason. Anyway, this is already a thing - mutual funds can only be traded once per day. It hasn't demolished mutual funds; they've become very successful. $\endgroup$ – Harper - Reinstate Monica May 25 '17 at 2:06
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    $\begingroup$ @comprehensible The challenge is how to undo those distortions without contorting the market even further. I have heard of one argument that all trades should be given a random latency of a few milliseconds to undo the progress you mention. That technique stands a better chance of working because it still keeps the market fluid. $\endgroup$ – Cort Ammon - Reinstate Monica May 25 '17 at 17:42
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    $\begingroup$ Also, do remember that money is a strange thing once you get above "mere mortal" scales. It doesn't do the things you think it should do. National-scale money and the velocity it moves at is really hard to comprehend. $\endgroup$ – Cort Ammon - Reinstate Monica May 25 '17 at 17:45
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Yes, absolutely.

It would require international legislation and agreement between countries but absolutely it could happen.

There are people who sit watching upticks and downticks all day, devise algorithms, front run etc. All those useless jobs and industries that add nothing to humanity would be redundant. It would be too risky to input highly leveraged trades as 6 trades times per day, another useless occupation gone.

Great idea, maybe we need to talk to our politicians! The big barrier of course will be agreement, all countries must sign up and would London/ New York like to lose all that fast money?

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