Too many things are being changed at once too quickly imo. Abolishing Stop Market Order triggers for investors probably would have saved them from themselves, and that rule has already passed. Think about it for a minute, what trader worth his salt wouldn't love to see PG lose 50% of its value again in one day? They don't exist. So, this "protection" is only for stocks like NetFLIX or OpenTable or PriceLine that are complete fads waiting to go to zero. Yeah, let's change completely the market structure so that we can save people that have no business gambling on stocks like these. They should do something, and forcing MMs to be liquidity providers of last resort has never worked. They walk away in extreme situations regardless of rules.
SEC OKs rules blocking 'stub quotes New York (MarketWatch) - Responding to the 'flash crash' that rattled the markets on May 6, the Securities and Exchange Commission on Monday approved rules prohibiting the use of so called 'stub quotes' in equity markets. The SEC requires market makers - typically specialists at the NYSE Euronext's New York Stock Exchange or the Nasdaq - to have both a bid and offer when they want to publish a quote. To deal with this, market makers typically have posted placeholder stub quotes, which are orders placed that are considerably different than the market price for a particular security and that are not intended to be executed such as an order to buy at a penny or an offer to sell at $100,000. However, in the midst of the "flash crash," these orders became the only liquidity in the market for many securities and, as a result, numerous retail investors ended up with huge losses.
what they should do is require orders to go to exchanges instead of getting internalized. brokers and execution services that poach order flow have a huge advantage over everyone. then when they decide they dont want the flow they send it to an exchange and expect some firm to provide the liquidity. guarantee order flow and you will get liquidity.
Requiring orders placed on any exchang to have to stay on the exchange for lets say... one second would help too (which is eternity for HFTs that have an unfair advantage). But lets face it. HFT is here to stay. When the most brilliant people in the room become the regulators you may be able to regulate the HFTs but I think we all know who the smartest guys in the room are and I am fairly certain they will always be a step ahead.
I would not agree that the most brilliant people in the room are not the regulators. The problem is that it is a revolving door from the regulators to the big Wall Street firms. There should be at least a five year moratorium placed on regulators being able to leave as a regulator and being hired by those whom they had the responsibility to regulate.
What human would have stepped in front of a 1000 point DOW drop? Only an algorithm calculating it as a six sigma event would have executed in that environment. The market broke major resistance that day, it would have dropped hard even without algo's. The question is would it have come back so quickly without them.