Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed.
The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increased to $0.05. The hope was to increase liquidity while decreasing volatility in these names. In fact, those names experienced decreased liquidity with no decrease in volatility.
The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increased to $0.05. The hope was to increase liquidity while decreasing volatility in these names. In fact, those names experienced decreased liquidity with no decrease in volatility.
HFT is a result of regulation.
[0] https://www.sec.gov/divisions/marketreg/subpenny612faq.htm
[1] https://www.benzinga.com/general/education/18/04/11517027/th...