The fake out
Here's the other big problem: The HFTs create and cancel hundreds of billions of quotes per session.
In 1999, there were 1,000 quotes per second streaming from U.S. stock exchanges and about 2 billion shares traded each day. Today, there are 2 million quotes per second but the market trades just over 5 billion shares per day. So, we are seeing just over twice the volume of stock traded, but 2,000 times more quotes — quotes that are essentially HFTs at war with each other.
In other words, the HFTs generate a crushing, expensive amount of information (data) that don't need to be sent to millions of computers around the world. They spend a vast majority of their time spoofing, or trying to fake out algorithms of other HFTs. As Michael Lewis said, the HFTs give these spoofing algos scary names like Ambush, Nighthawk and Raider.
Read MoreDom Chu goes to high-frequency trading school
Now the issue isn't just that the algos are attempting to manipulate markets higher or lower, which should, of course, be a concern to the regulators. But primarily this "quote stuffing," sending millions of spoofing quotes per minute, effectively blinds real traders the same way throwing a handful of sand into an opponent's face would cause them to not see clearly.