How would one demonstrate that HFTs actually provide liquidity? They get into and out of positions in milliseconds in a race with other HFTs to front-run a trade that was about to happen anyway. If they facilitated trades that were otherwise off the table, they wouldn't need to shave their latency hard, because there wouldn't be anyone else trying to make the same trade whom they'd have to beat. We should be compensating people for making better routing decisions with society's capital, not for making the same decisions but 1/100,000 of an hour sooner.
And formal market makers accept an obligation to stay in the market and provide full-time liquidity in return for their profits. I have to question the value of displacing and de-funding them in favor of HFTs who can walk away at the worst moment (as when they exacerbated the flash crash).
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How would one demonstrate that HFTs actually provide liquidity? They get into and out of positions in milliseconds in a race with other HFTs to front-run a trade that was about to happen anyway. If they facilitated trades that were otherwise off the table, they wouldn't need to shave their latency hard, because there wouldn't be anyone else trying to make the same trade whom they'd have to beat. We should be compensating people for making better routing decisions with society's capital, not for making the same decisions but 1/100,000 of an hour sooner.
And formal market makers accept an obligation to stay in the market and provide full-time liquidity in return for their profits. I have to question the value of displacing and de-funding them in favor of HFTs who can walk away at the worst moment (as when they exacerbated the flash crash).