>In exchange for the risk of getting caught glad-handed during severe events the specialist was given the privilege of making a spread the rest of the time. No

>In exchange for the risk of getting caught glad-handed during severe events the specialist was given the privilege of making a spread the rest of the time. No, they had old fashioned ways of withdrawing their liquidity. Not answering the phone, or pretending they can't see you across the pit. >We allow them to effectively front-run through physical location and latency advantages (that is, they see quotes and price before anyone else and thus can react faster than anyone else) That isn't front-running. Front-running means seeing the order flow before it reaches the matching engine and stepping in front. >You can see the size map essentially disappear as the market's depth When depth levels are taken out you have a great big empty space between the bid and the ask. It may have been 20 ticks wide yesterday (it was about 8 on eurostoxx, and those are chunky ticks). It's empty because someone has traded through those levels and taken all of the liquidity, so naturally it takes time for new orders to replenish the market. It isn't only because participants are withdrawing liquidity. Also, greater volatility means a greater dispersal of opinions about the correct price - so even when orders are put back in following the shock they are likely to be spread over a wider range of ticks. If you're a market maker (algorithmic or otherwise) who has just been smashed on the bid and seen the market drop 30 ticks, where do you put your new bid in? The disinformation campaign by Wall Street against the HFT bogeyman is impressive. It isn't much different to record labels against MP3s or any other industry that is being disrupted by technology, but it is surprising to see a lot of the HN crowd falling for it.