The elephant in the room is and continues to be the euro plunge. 40% of the profits of the S&P 500 multinationals come from overseas sales. A very strong dollar due to the eurozone crisis will cause multinational profits to plummet. Back in march 2009 when the dow was around 6500, the euro was around $1.25. Now the dow is 10380, and the euro is a mere $1.27. Its not so much that there's a "strong dollar" (gold @1200!) but this feels like another flight to safety into USDs.
They(HFT) do provide for fast fills which I do like. Hopefully they will not get penalized too much. Their making money and us individual traders are making money so letâs hope for no major change.
Exchanges like LSE, Euronext, TWSE, Xetra, TSE, and a slew of others have adopted intra-day volatility interruption auctions (VIA's). It would seem plausible that implementing this on US exchanges, one of the last *not* to do so, the chance of future 5/6/2010 episodes will be significantly reduced. NYSE liquidity replenishment point (LRP) measure seems to have fallen short due to narrow implementation. Quite a bit of this issue falls in the lap of exchange policy IMO.
I am totally against any interruptions or cooling off periods. Let stuff trade where it is going to trade. In fact, if you artificially prevent price discovery, that is when people really start to panic. For example, there's nothing like a limit-up or limit-down day on a commodity futures contract to scare people sh*tless. You don't even have the opportunity to trade. It causes more panic, not less.
Intra-day auctions during a continuous trade session under extreme volatility were shown to be helpful in realistic price discovery on the LSE & Xetra (when I get some time, I'll try and dig up the study on ssrn). There is also a signficant difference between a commodity limit day halt and a ~3-5min "auction." Sure, it's up in the air whether this is something that may help here in the states, but one avenue I'm sure US exchanges are taking more seriously after 5/6. From Xetra: "Volatility Interruption Auction is triggered if either a static or dynamic price range is exceeded (these are 3-10% and 1-5% from the static and dynamic references prices, respectively) and are adjusted after an auction price determination. The auction lasts approximately 5 minutes, with a random end; if the volatility interruption auction is triggered during an auction period, the auction period is extended by 2 minutes."
From a free market standpoint I totally agree with you. The problem is with margin calls. I hate to see traders have their positions liquidated by a computer sending market orders into a broken market and getting wiped out.
Margin calls are great for people who don't overleverage and are able to take advantage of the situation. Margin calls are not inherently bad.