[sireat]

We all can agree that increased liquidity is good for everyone, mom and pop, traders, investors, America, etc., Of course one can argue whether we really need sub 100ms liquidity but that is not the biggest problem.

The biggest problem with HFT provided liquidity is that it is far from a sure thing as the Flash crash proved. The liquidity dried up so fast, because most players algorithms "said" the situation was too unpredictable so the easiest thing to do was to close up shop temporarily.

In older days, market makers on the floor were allowed to make the money from the spread with the understanding that if the things got rough they would HAVE TO stay in the game. Some got rich, some died broke, some jumped out of windows, but overall the game continued.

Increasingly, the role of a market maker has been delegated to HFT firms, but without any obligations placed on them.

Who is to blame for such state of affairs is a question someone else can answer better than me.

[paperwork]

As far as I know, market makers still have this obligation.

I believe Taleb has argued that HFT liquidity disappears when it is most needed, like seat-belts which work all the time, except during accidents (his metaphor may have been different)

Paul Wilmott argued that this much liquidity is actually not necessary. If someone will have trouble getting out of a stock, maybe they will think twice about getting into it.

Of course, an HFT practitioner doesn't need to prove to anyone why their activity is beneficial to society. The burden of proof is on the critics to show why this activity is harmful.