Second price auctions are not exchanges

Today, the world of advertising trading technology (ad tech) is dominated by real time bidding markets calling themselves exchanges. In actuality , they are not exchanges. What is even more astounding is the continual reference to liquidity in these second price auctions. So, let's take a look at what are the attribute of exchange facilitated liquid markets. Liquid markets tend to exhibit five characteristics: (i) tightness; (ii) immediacy; (iii) depth; (iv) breadth; and (v) resiliency.  Tightness refers to low transaction costs, such as the difference between buy and sell prices, like the bid-ask spreads in quote-driven markets, as well as implicit costs. - Second price auctions have no sell price, they have price floors.

Immediacy represents the speed with which orders can be executed and, in this context also, settled, and thus reflects, among other things, the efficiency of the trading, clearing, and settlement systems. - RTB markets execute and clear orders very well. Settlements is a whole other ball game.

Depth refers to the existence of abundant orders, either actual or easily uncovered of potential buyers and sellers, both above and below the price at which a security now trades. - Second price auctions have only one sell order and thus lack depth on both sides.

Breadth means that orders are both numerous and large in volume with minimal impact on prices.- RTB markets transact impressions one at a time and thus are numerous but lack volume.

Resiliency is a characteristic of markets in which new orders flow quickly to correct order imbalances, which tend to move prices away from what is warranted by fundamentals. - Unified second price auction models in use today don't result in uniform valuations based on fundamentals. For sellers, there is not way to determine the relationship of price to value.

These terms reflect different dimensions of the extent to which advertising inventory can be quickly and without significant costs can be transformed into legal tender.

While I am generally not one for keeping score, seems to me like second price auctions rate a 1 out of 5. MASS Exchange uses a double sided continuous auction, the same market structure as exchanges like NYSE and NASDAQ.