It is incredible engineering and it has incredible downsides, not the least of which is the ability to destroy a market in seconds, due to a blip in information, with cascading domino effects.
Assume you are referencing the flash and twitter crash? I always wondered why people never mention how fast it recovered... the ability to heal a market in seconds. The '87 crash was a cascade much more severe and actually involving the whole market that happened without HFT.
Also the incredible focus on these two events, considering all the other turmoil in the financial markets, has always struck me as a clear case of scapegoating with Luddite underpinnings. Pretty soon, we will all believe that the recession was caused by HFT's.
I agree. The speed at which markets respond to news reveals how efficient the system works. Flash-crashes and what not are either caused by human programming errors or it is simply the right reaction to new information about the environment. We want the new price to be discovered ASAP.
How long before someone (a hacker no doubt) games the system to create a selling spiral, just waiting to take profit of the rebound.
If it´s well planned the one causing the dive is not going to be the one taking the profit (at least that it can be proved).
We need not wait for that to happen. Such shenanigans have been observed and documented already, such as in the book "Reminiscences of a Stock Operator." It was written in 1923, and worth reading today.
Well, it's been a common enough movie plot (cf. Casino Royale where the Antagonist engineers terrorist attacks on high-profile companies whilst short-selling their stocks).
I don't know if "destroy" is the right word, although that can happen. It has the ability to act extremely quickly, which is actually what we want. We want markets to respond to new market conditions quickly so that we know the information has been disseminated throughout the markets. The faster it behaves, the more efficient it is. The problems we see come from human programming errors, not from a mis-networked market. This is incredible engineering.
