High-Frequency and Ultra-High-Frequency Trading

I anticipated this in an article I wrote some years ago, "A Bust to the Markets" (Currency Codex, 1996):

It will be most interesting to see how HFT and UHFT develop in the future. It should be said that at least in the short term, they do add liquidity to the market, which is, of course, a positive factor. But in the long term, they may well encourage questionable activities in the marketplace."

The "questionable activity" hit the equities markets hard in May of 2010 when a flash crash occurred. Sadly, little concrete has been done to prevent this from happening again. Solutions have been proffered, but strong medicine is not wanted by those who run the show. Forcing a small increase in latency before a trade is executed is one possibility; a minuscule tax on the value of each transaction is another.

The author's crystal ball is crystal clear on this one: unless changes are made, another flash crash is a certainty.