First, HFT is very difficult. It requires the talents of extremely intelligent individuals. These individuals are a scarce resource. Now, being as they are near the generation and handling of money, HFT firms are best placed to outbid all others for these people. So R&D and other such lose out on top minds. Additionally, if much of the money of high net people is being invested in funds without finding its way into risky high tech research, this too can be a drag on the economy in the long term. http://sirc.rbi.org.in/downloads/4Cecchetti.pdf
The second is a problem of misaligned priorities. It's one thing to suck in all the best minds and it's another to have them all expending a massive amount of effort trying to shave down microseconds so their order goes in first. Chris Stucchio here http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html argues very well that the so called sub-penny rule (abs(changeinprice) >= 0.01) is antiquated and from a time when humans reigned. This rule is a source of friction for the bots and is very likely a key player in the current misallocation of talent. It's removal would make HFTing cheap enough that not so many people would be needed. Some would leave to cure cancer or mine asteroids. The rest could then work on more sophisticated pricing techniques - which is a net boon, maybe those techniques could make prices more stable or be reused for optimal donor matching or something.
First, HFT is very difficult. It requires the talents of extremely intelligent individuals. These individuals are a scarce resource. Now, being as they are near the generation and handling of money, HFT firms are best placed to outbid all others for these people. So R&D and other such lose out on top minds. Additionally, if much of the money of high net people is being invested in funds without finding its way into risky high tech research, this too can be a drag on the economy in the long term. http://sirc.rbi.org.in/downloads/4Cecchetti.pdf
The second is a problem of misaligned priorities. It's one thing to suck in all the best minds and it's another to have them all expending a massive amount of effort trying to shave down microseconds so their order goes in first. Chris Stucchio here http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html argues very well that the so called sub-penny rule (abs(changeinprice) >= 0.01) is antiquated and from a time when humans reigned. This rule is a source of friction for the bots and is very likely a key player in the current misallocation of talent. It's removal would make HFTing cheap enough that not so many people would be needed. Some would leave to cure cancer or mine asteroids. The rest could then work on more sophisticated pricing techniques - which is a net boon, maybe those techniques could make prices more stable or be reused for optimal donor matching or something.