[GordonS]

> but not if it just happens because somebody put in a bunch of orders and then realised their mistake.

Surely that would be an occasion thing though, not several times a second for a prolonged time?

I can see how throttling of some kind could work, as long as it's not too aggressive.

[nv-vn]

Market makers routinely have to adjust their quotes as the price moves. If they set a price and then the market moves significantly, the price will soon be incorrect. If they leave the order on the book then they might get undesirable fills (losing money) or it might just sit there and never get executed because their price is worse than what the market is offering. In either case, it's useful for them to be able to adjust their quotes by cancelling previous quotes that are not up to date with the latest information.

Imagine if every time you go to the gas station and see the big price for a gallon you write it down. Should the gas station still have to offer you the lowest price over the past {day,week,month} if the price has gone up? "Cancelling" orders is this same idea of changing the offer, only at a much smaller time scale because markets trade extremely fast.