What if we redesigned the stock market from scratch to limit market maker power without killing liquidity? (Long read)

I’ve been thinking about this from first principles instead of trying to “patch” today’s system.

The current market gives market makers far more influence than just providing liquidity. That power comes from continuous trading, speed advantages, spread control, and real-time visibility into order flow. If you remove any one of those, they adapt. So the question isn’t “how do we punish MMs,” it’s “how do we architect a market where they can only do the job they’re supposed to do.”

Here’s what a cleaner, fairer market would actually look like mechanically.

First, get rid of continuous time. Replace it with short batch auctions every few seconds. All orders submitted during the interval clear at a single price. This instantly kills latency arbitrage, quote stuffing, and microsecond front-running. Speed stops being a weapon. Price competition replaces reaction time.

Second, make order intake blind during each batch. No visible book, no stop inference, no cancel-replace signaling. Only aggregate imbalance exists internally until the batch clears. This removes psychological and informational exploitation while still allowing real supply and demand to determine price.

Third, crowd sets the price first. Market makers do not quote prices. They do not step ahead. The clearing price comes purely from matching public buy and sell intent. Only if there is leftover imbalance do MMs step in, and only at the already-determined clearing price. They act as buffers, not drivers.

Fourth, change how MMs get paid. No spread capture. No pinning incentives. Instead, they receive a fixed liquidity fee per share absorbed, plus a volatility-adjusted risk stipend when imbalances are large. They are compensated for absorbing risk, not for slowing price discovery or farming chop.

Fifth, hard caps on inventory and leverage. Market makers cannot accumulate directional exposure. They must neutralize inventory within defined windows. This prevents them from quietly becoming hedge funds while still letting them stabilize the market when needed.

Sixth, separate and slow the options market structurally. Options clear in longer batches. Hedging references prior clears, not instant ticks. This dramatically reduces gamma pinning and “max pain” dynamics that distort the underlying.

Seventh, retail execution becomes predictable. Everyone in the batch gets the same price. Worst-case slippage is known in advance. Orders either fill cleanly or don’t fill at all. You still take risk, but you’re not punished for being slower than an algorithm.

Finally, stress is handled honestly. When volatility spikes, batch intervals automatically widen and MM obligations loosen. Liquidity is allowed to thin in a controlled way instead of vanishing suddenly and causing flash crashes.

Compared to today, the difference is stark. Right now, markets reward speed, opacity, leverage, and time-based exploitation. In this design, markets reward conviction, patience, and real supply-demand alignment. Market makers still exist, but their power is capped by architecture, not by trust or regulation.

You don’t eliminate intermediaries.
You remove their ability to dominate price.

Curious how people here would poke holes in this or improve it.