Man Vs. Machine: Stock Exchanges Embrace ECNs
The exchanges have anticipated these demands. The NYSE's new facility in Mahwah, N.J., is three football fields long and mostly empty—for now.
Beyond the questions of liquidity and location, critics argue high-frequency traders have muddied price discovery by flashing orders for a second or two before canceling almost all of them. Ninety-five percent of these trades are cancelled.
Cronin said the high rate of cancellation makes it difficult for other investors to get a true sense of what supply and demand is for a stock, and therefore what its proper price should be.
"It creates an enormous amount of noise and tax to the system and yet they don't pay for that at all," said Cronin, who advocates charging for cancelled quotes.
This is one of several issues Schapiro said the SEC is looking at in its efforts to bring the market structure up to date with its participants.
The SEC also considering granting special status to high-frequency traders who step in when the markets get rough. Not all high-frequency firms support the idea. The smaller houses feel they would be unable to meet such obligations, putting them at a disadvantage to their larger rivals like Getco and Tradebot Systems.
Another issue the SEC is examining is whether there is any advantage to the broader markets in allowing high-frequency traders to get data from the exchanges that is unavailable to the general public—a public some say will be on the losing side of the investing generation gap until the rules are changed.