Right, the actual proposals to do this are obviously more sophisticated than that. The way that the bigger/better hedge funds and such avoid someone else doing

Right, the actual proposals to do this are obviously more sophisticated than that. The way that the bigger/better hedge funds and such avoid someone else doing latency arb on them is by having their own points of presence near global trading hubs. Their traders and algo systems decide on the trades to make, communicate them all to the POPs where they're held behind a release gate, then the POPs do a global drop of the gate based on gps/atomic time synchronization. It becomes impossible for any external system to get a latency arb advantage. An arbitrary number of exchanges could implement the same sort of ingress/egress system.