There is certainly no preferential access system on the ASX, but it is relatively costly to trade from the Exchange’s Colocation facility compared to other access methods, but importantly it is open to any full participant in the market. Some companies also offer shared access to Colocation facilities to 3rd parties who do not have their own setup within the facility because they are foreign firms or are not a full participant. They are still able to gain access to the same facility and the same systems however.

It is true though that liquidity is only offered when it’s beneficial to the trader, quotes can be withdrawn or priced out of a reasonable value very quickly if there is too much uncertainty, and any bids or offers are traded only when it’s profitable to do so – they are of course a business like any other.

Mostly the arms race to the millisecond is played out between a set of HFT companies, all who have access to the same systems. If these companies beat another institution to a trade that they wanted, it is precisely because they have invested a lot of time and effort into having this ability, not because they have unfair access that only a few can obtain. If the costs are too high to have access to the Colocation facility, such that these institutions or other investment houses choose not to enter the facility, they have made the choice – that they don’t see a profitable business case to pay the extra fees associated with the access, and therefore are much more likely to miss trades that they otherwise would have a competitive chance at winning. Either that, or they are ignorant of the facilities availability and/or the companies that provide access to it.

Although there are a few of cases of market manipulation by some of these firms in other overseas markets, I do not believe it is common practice amongst the HFT companies. Market Manipulation is dangerous because the company’s only business interest can be completely taken away from them if they are discovered – eg, being banned from the market means they would have to shut up shop or move to another country and always comes with a reputational cost to the business. In any case, you do not need millisecond access to manipulate the market, there are probably far more cases of non HFT traders doing this than there are HFT traders – bad apples are bad apples no matter what basket you put them into. Granted some strategies appear opaque, and behavior mysterious when viewed only through the narrow focus of an investment house processing market data, but it is a leap to say that because it is not understood by the observer that it is illegal.

Well, what I could gather from those interviews is that for Robert Greifeld (NASDAQ OMX) it was all NYSE’s fault. For Duncan Niederauer (NYSE Euronext), it was all the smaller electronic markets’ fault. Thank goodness, nobody asked the latter: who knows who they would blame.

Greifeld says that the problem appeared when NYSE stopped trading P&G and 3M, due to their individual circuit breakers. Niederauer says that it’s a good thing they have individual stock circuit breakers, unlike NASDAQ, that has a market-wide one.

However, everybody is doing their best to fix the situation, but nobody knows exactly what happened. This, naturally, make us all very confident it’s never gonna happen again.

They mention that the SEC will fix the problem (although they themselves were already at it). The SEC woman (can’t remember her name), last I knew, didn’t know exactly what happened either.

The English guy interviewing Niederauer (Simon something, extreme right on the screen, looking like a funeral director) suggested the problem was created by LFT and algorithmic trading.

There was talk of a “fat finger” (I am thinking it might have been a fat middle finger), then there was talk that it all started at the Chicago Mercantile Board. The conspiracy theorists blamed Goldman Sachs…

It’s mid June; does anyone know how trades made during those 15 minutes were actually settled? (Not that it actually affects me: there is something good in being poor).

The computers have remained suspiciously silent about the whole episode. Maybe a tacit admission of responsibility?

The good thing is that I’m starting to believe the whole thing never actually happened! Thus, it couldn’t possibly happen again.

Marco: it’s hard to know exactly the role algo and/or high-frequency trading had in the flash crash. Once again, Planet Money has something interesting to say on the topic.

The “mug punters” most likely to get hurt by HFT (or other forms of “bot trading) are the ones who are trying to do the same thing on a smaller scale, with fewer resources…

Finally, has this HFT anything to do with the Flash Crash last May? And what about the 1987 crash?

And what about those proposals (backed even by Buffett and Soros, plus a host of economists) of a Robin Hood tax? Have you heard about them?