[geekpondering]

"If Buyer D is still willing to spend $11, how is that perverting the market?"

What if Buyer D isn't willing to spend $11?

"only serves to make a market more efficient"

I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market at times.

[rqebmm]

>What if Buyer D isn't willing to spend $11?

If Buyer D isn't willing to spend $11, then he simply doesn't buy the item. The HFT took on risk by buying the item and needs to either find someone else willing to buy it for >$10 or lose money.

>I would say it's exploiting inefficiencies.

Exploiting Market Inefficiencies == A More Efficient Market. The whole idea of "buy low, sell high" is exploiting inefficiencies in pricing, which is all HFT's are doing. As a result, they bring the buy/sell prices closer together, making it easier to trade. In return for making the market more efficient, they get a profit, and everyone wins except those who are acting in an inefficient manner. (Remember, buying something for less than it's worth is ALSO an inefficiency!)

The point about volatility is fair, but that has to do with market stability, not market efficiency. The HFTs are HIGHLY incentivized to not destabilize the market because they stand to lose a LOT of money if they make a mistake. Now, it _is_ possible someone could concoct a scheme where they profit from a destabilization caused by faulty HFT, but HFT is the means by which that actor perverted the market, not the reason the market is perverted.

[geekpondering]

> Exploiting Market Inefficiencies == A More Efficient Market. The whole idea of "buy low, sell high" is exploiting inefficiencies in pricing, which is all HFT's are doing.

There's a difference between pricing inefficiencies and technology inefficiencies. In theory there should be equal access to markets. This is why SEC laws on disclosure exist. When people with greater technological ability can, in effect, toll everyone else, you are eliminating this idea of equal access.

> The HFTs are HIGHLY incentivized to not destabilize the market because they stand to lose a LOT of money if they make a mistake.

So are all traders, but that doesn't stop things like Enron and Lehman Brothers from creating smoking holes in our economy. When you start creating legal fictions and technologies that are barely understood by those that create them, much less those that provide executive oversight, government oversight, or the general public, you are getting into very dangerous waters.

Software only works as long as the assumptions of the programmer stay valid. HFT quants are incentivized to make their companies money, not to protect the market at large. An application on a desktop computer crashing and exhibiting weird behavior isn't a big deal. A HFT process going rogue is going to cost a company millions or billions of dollars at best.