New Trading Strategies Literally Work by Exploiting Self-Created System Failures - Have We Finally Crossed the Rubicon?

I am on the pro-trader/pro-trading innovation (read technical and algorithmic trading) side of arguments more often than the average person in my estimation, but some things go too far even for my taste. From CNBC:
"A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.

The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday.

“My guess is that the algo was testing the market, as high-frequency frequently does,” says Jon Najarian, co-founder of TradeMonster.com. “As soon as they add bandwidth, the HFT crowd sees how quickly they can top out to create latency.” (Read More: Unclear What Caused Kraft Spike: Nanex Founder.)

Translation: The ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity."
In a world where regular investors are feeling more and more alienated and confidence in the market system is coming close to failing (if it hasn't already) this is just another straw on the camels back. Though as a general matter I wouldn't typically advocate for increasing regulation as the solution to problems, it is clear the the professional investing community is not taking care of its own business in this case. Therefore, outside regulation might unfortunately be the only solution. Until then, regular people will continue to wonder if the odds are just so stacked against them that it isn't worth the trouble.

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