Maggie's Farm

HFT isn't a situation of "this is all bad" as Lewis suggests, or "this is all good" as the Post article suggests.

There are varying degrees of benefit to the practice. The real issue, as I see it, is that HFT can be a destabilizing situation in the market and occasionally scare capital from entering, while incrementally raising the cost of purchase.

HFT thrives on volume - the margins are so slim, the more often you trade and the larger volume you trade, the more you stand to make. For the larger, more tech-savvy, firms and traders, there is opportunity to create a new revenue stream (witness the reports that some brokerage firms never had a single trading day loss over the past year! That is only possible in a rigged market). HFT is market rigging.

But it is a useful tool, just like options, shorting or any other trading tool available. The question is how to make it more strategic rather than simply trying to keep scaling it up (which is how it is done now).
The answer is the one thing I firmly believe can eliminate income taxes - financial transaction tax. By lowering the margins on HFT, you make it a strategic tool rather than strictly a volume tool. Firms have to carefully weigh the factors going in to upcoming trades to determine when HFT is going to logistically benefit them. Right now, the answer is almost always "every trade benefits if we jump in early". With a financial transaction tax, this ceases to be the case, and it benefits the smaller investor, who typically is in the market for the longer haul, rather than the trader and the big lot movers and shakers.

I've always felt the attempts to control markets are wrong - you can't control most things in life (I like to ask my boys what is the only thing you can control entirely? Yourself and your thoughts/actions).

But you can influence and manage anything outside yourself. It is better to manage than control. And if things become unmanageable (as they sometimes do), that usually indicates you've done a poor job OR a phase transition has taken place and you need to revisit your management technique.

The same is true in markets. Simple answers usually provide larger, more complex solutions.

If the practice lowered costs of transaction (and it does) more than it increases the price of the share exchanged (which is minimal), then there is a net benefit to allowing HFT.

However, as anyone knows the issue isn't that the net benefit takes place, but that it never accrues to the small investors.

There are good reasons why the rules preventing HFT should be changed. However, the net benefits need to accrue to the proper places. They don't. As a result, I'll stick with the term 'rigged' because I think the current set of SEC regulations rig the game for a different group of people, anyway. The SEC itself is corrupt.