This is a pretty good summary of why HFT could be destabilizing. The problem isn't with low-latency trade execution -- the problem is that there is a particular business model built on low-latency trade execution, and that model interacts poorly with tail risks. Humans are as usual doing poorly estimating or even understanding tail risks. We need a system where firms making bad decisions can be restarted (with the old bums liquidated) without the restart hurting other innocent people. But we don't have such a system today. "A best bid today isn't a bid to own shares at a price, or even a traditional dealer or market maker's attempt to provide liquidity. As much as 50% of the time it's just a firm trying to scalp a few basis points as quickly as possible. When that scalper's bid is executed, it then becomes an unexploded competitive liquidity demand, with the timer set, as Kirilenko found, at about two minutes, or even less." - Daniel Dulitz

It doesn't make sense to me. What's a "scalper" supposed to be? Describe "unexploded competitive liquidity demand"? Their unexplained use of connotative terminology seems highly suspect. - ⓞnor

ⓞnor, there are multiple paragraphs on the definition and connotation of the term "scalper" in the linked article of which this is an excerpt. I do think it's worth reading, and significantly clearer. - Ruchira S. Datta