Queue position is a form of risk, not just a time delay, and that market makers react to that risk by withholding liquidity. A queueing model applied to a price-time priority market finds losses to depth of as much as 8%. This inefficiency does not exist in pro-rata systems (though they have their own problems).
Post‑crisis capital and liquidity rules can unintentionally drain dealer risk‑bearing capacity and make markets thinner and more fragile, especially in stress. A model of securities dealers subject to leverage, position, and liquidity constraints inspired by Basel III–style regulation shows these constraints change dealers’ willingness to intermediate trades and hold inventory, which feeds through to bid–ask spreads and market depth.
High-frequency traders on Canada’s Alpha exchange end up looking more like Cournot quantity competitors than razor‑thin price undercutters. Their rivalry makes markets smoother and cheaper for everyone else, as expected in Cournot competition.
NYSE’s Retail Liquidity Program segmented its retail flow from the main venue. This is a theoretical worry but, for NYSE, a modest win. The program separated retail trades into a special dark segment makes prices easier to read and trading slightly cheaper for everyone.