On the lobbyists part, I agree 100%, I keep saying the same thing. And you're right, nothing will change, it takes a revolution to change the system and revolutions are never peaceful. Capitalism by modern definitions seems to include bribery/lobbying the laws as a normal part of the (real) market, that's really the issue. I'm talking about the real world, not the ideal capitalistic society.
But why this change took place? There is no Santa and regulators and policymakers are not free market minded. There was fundamental reason why Wall Street had to open up and it was the weight of the printed paper thrown on the markets. Yes HFT is not providing liquidity just illusion of it. They are playing frisbee with this confetti. Look what happened to Knight on NYSE. In 30 minutes of erroneous market activity their capital evaporated. Specialists and MM never provided deep liquidity either and most recently were unable to support orderly markets. Look at NYSE recent hiccups. And that where HFT comes in whether you like it or not. It is not liquidity they are providing but just the perception of it. Without it the billions dollar webpage companies listed on exchanges would be probably much cheaper.
you are contradicting yourself several times: a) you probably meant that you disagree because vicirek said exactly the opposite than what you are saying. b) how can HFT quotes be an "illusion", UNLESS of course hft houses see incoming orders before they hit the matching engine. So, one has to give: Either unfair market practices are at play or there are no illusory quotes.
sorry but I stick to my facts, hft has not improved liquidity nor has it lowered costs of executions. And honestly I do not get your point because you are swerving left and right all over the map.
What the regulators need to do is ease the barrier to entry to markets, as market taking, but particularly market making. Remove all silly regulations like the PDT rule. Remove the need for $10M USD to be able to trade currencies professionally. Allow new exchanges to compete. Remove all these barries to entry that all they do is protect the status quo and actually make markets more obsfuscated and cater only to the rich. Open the markets up and make them fair, up and down, side to side.
99.9% of all bids and offers are cancelled without being filled. The system is completely broken. Everyday there are thousands of mini flash crashes/ flash spikes in individual stocks due to HFT pulling quotes in a nanosecond and creating liquidity vacuums. They fill the orders at the manipulated top/bottom of the move and immediately bring the price back to where it started. All in the blink of an eye (actually much faster, but you get the point). HFT adds NOTHING to the markets. Just an illusion of liquidity which disappears when you try to get filled.
This is too idealistic if not naive. Reality is that there has to be core business group with vested interest in coming to work everyday that wants to put capital and infrastructure for the markets to work. They are not going to accept same risk reward ratio with Joe Shmoe who may or may not trade today or gets tired after 30 minutes of trading and needs to take a nap. On top of that they would have to invest their own money in infrastructure so Joe's life is easier. Idea is good but then it comes down to details. Certainly improvements would be welcome but we have to be realistic what can be done and what would really work for stable and fluid markets. Barriers of entry are not that high anyway.
If I had money, I would start a currency exchange in the middle of nowhere like the mohabe dessert, with solar powered datacenter, so that rent is super cheap and power costs next to nothing, so colocation would be inexpensive and not some part of Equinix. Then I would allow anyone to make or take markets with my own algos providing the core liquidity. I would do it in such a way to get around current idiotic rules that say US citizens need $10M USD to trade currencies professionally. Your buddies need not apply.