“Yeah, [high frequency trading’s] increased liquidity, but if you’re an institutional buyer, if their counterparty is a high frequency strategy, they’re getting picked off.” – researcher Matt Samuelson, see also below 
Indeed that’s the point of HFT but, as usual, the money quote is buried deep in the industry-friendly article. The piece at  is mostly dedicated to drawing a bright line between HFT and Flash so that the former can cleanly escape now that the latter has to be sacrificed. Tyler notes that Flash is a bit broader than most of us have thought, and one of Seeking Alpha’s top commenters contributes this nice analysis in the thread (if you’ll pardon the expression) beneath:
I wonder if the thread in the sweater will lead back to the PPT at some point. My guess the govt cuts the thread prior to that point.
The Wall Street Journal adds weight to the above with an article  stating not only that Flash Orders came out of Flash Options at sector pioneer Direct Edge, but that Direct Edge only really got going once it had Goldman and Citadel on board as stakeholders. Wow! Does that add interest to the Teza saga or what?
Last week’s Melissa Hathaway vs Larry Summers thing is, I would suggest, strong evidence that our commenter’s presumed thread-cutting exercise is ongoing. I’m guessing that Goldman’s HFT dominance combines with their liquidity providing mandate from the administration to form a sort of binary weapon, a Mother of All Blood Funnels colocated  precisely within the NYSE’s IT infrastructure. That being the case, it’s no wonder the White House wants a veto on any cyber-security investigations that touch Wall Street.
So backing up a bit, the big picture is not without it’s share of humour. If we take the Scott Reynolds Nelson hypothesis as probable then 2002-07 can be characterized as the "Walmart Bubble" and abuse of derivatives and off-balance-sheet deals evidently managed to create an O($1 trillion) hole in the balance sheets of the world’s private financial institutions. It’s not like we weren’t warned, but on 7/7 ’08 the markets realized that Fannie’s and Freddie’s books were hollow, and with FASB getting serious about banning QSPEs altogether even the money market funds started to collapse about half way through the week of 9/15.
It’s been a tough time all around and the phrase "there can be only one" comes increasingly to mind. Or perhaps we’re just living out the plot-line of this 35-year-old European hit single record. Doomers can just imagine Serge and Misha listening to Dr. P’s Russian-accented Dutch as Goldman successively throws the 4 other IG’s and AIG off the back of the sleigh. Here’s a hilarious rhyming translation into English of the lyrics.
Notes and References: "Debating the Value of High Frequency Trading", by Ivy Schmerken, Advanced Trading, August 10, 2009.
: "The Future of Flashed Options", Tyler Durden, Seeking Alpha, August 9, 2009.
Last week’s decision by Nasdaq Stock Market and BATS Exchange to suspend the controversial practice of flash orders has caused some of the media and political hysteria to die down. But there is still quite a bit of confusion as to how these flash orders fit into the broader topic of high-frequency trading, and there is debate on whether this form of rapid-fire, in-and-out trading adds value to the equity markets.
While everybody is talking about flash orders and high frequency trading, one of the problems is that people are using the terms interchangeably, said Matt Samelson, principal at Woodbine Associates, a capital markets research and consulting firm focusing on equity market structure in Stamford, Conn.
: "Direct Edge Considers Life Beyond Flash Order Types", by Geoffrey Rogow and Jacob Bunge, Wall Street Journal, August 10, 2009.
With the ban of Flash orders in equity markets now practically a done deal, politicians, and hopefully regulators, will start focusing their attention on Flash derivative products which facilitate not only a two tiered market but potential market abuse by the privileged few who have access to advance looks in assorted securities classes.
: "Is High-Frequency Trading Pillaging Your Portfolio?", by Jonas Elmerraji, August 11, 2009.
Direct Edge began life as Attain ECN, a struggling electronic platform that was sold to Knight Capital Group Inc. (NITE) in 2005; after a rebranding, Goldman Sachs (GS) and Citadel Investment Group joined as stakeholders.
The company’s adoption of flash orders – cribbed from a similar practice in options markets – helped Direct Edge gain a foothold in U.S. cash equities.
: "Online Roundtable on Current Issues Related to Enron and Arthur Andersen", Financial Management Association International (FMA), April 24, 2002.
With co-location, firms get to rent server space right next to the servers that process trades for the exchanges themselves. And it’s becoming big business for the exchanges, which are hungry for more revenues in this era of increased competition. The New York Stock Exchange is currently in the process of building two cutting-edge trading hubs — one in suburban New Jersey and another just outside of London – at a price tag of $500 million.
That closeness to the exchange’s servers only gives HFTs an edge of a couple nanoseconds — but for firms who measure their trades in microseconds or less, that’s a hugely valuable advantage. Up to now, the SEC hasn’t stepped in to regulate the practice of co-location.
Question 3: Are the current accounting rules regarding special-purpose vehicles and off-balance-sheet liabilities flawed? If so, how can they be fixed?
Rebecca:AIMR has taken the simple position, but we feel very strongly about it, that debt should not be hidden. First of all, we have held that view for a very long time, going back to the 80s, that all debt should be on the balance sheet. Any non-debt obligation also should be on the balance sheet. Any additional risk exposures should be fully disclosed.
Unfortunately, the tide has gone the other way. The tendency is to say, "Well, the FASB didn’t do their job." We could not disagree more. They tried to do their job but the political pressure went the other way, and they finally had to yield.
This is something I think society as a whole has to consider. Exactly what do they want their institutions to do for them? In the case of accounting, we want, as Bob has indicated, full, complete, and fair disclosure – transparent disclosure. But the only way that you are going to get it with a debt is to have the debt where it belongs – on the balance sheet – and that means all of the debt.