Here is a good survey of some of the debates, plus Paul Krugman mentions the topic in his column today. Here's my earlier post but I'd like to add or reiterate a few points:

1. On one hand, critics wish to charge that there is little or no advantage to having prices move more quickly to reflect new information. On the other hand, some of these same critics charge that short-run volatility of prices — assuming this is in fact the result of HFT (and that is not proven) — creates social costs. That's not quite a contradiction but it is an odd mix of views about the relevance of the short run.

2. I haven't seen a good estimate, or for that matter a bad estimate, of the social loss involved from investing resources in HFT. Even if the practice has no gain, I suspect the loss is small. It's the symbolic nature of the issue which excites people — bailed-out elites doing fancy things with powerful computers in a non-egalitarian manner — rather than the belief that it is a policy priority. Even if you think HFT is bad, on an actual list of bad policies or practices in our world, would it be in the top million? Mostly it's a canvas on which to paint complaints about the continuing political and economic power of finance, but we shouldn't let that skew our judgment of the practice itself.

3. There is no argument to date, and probably no argument period, that HFT can lead to financial insolvency or collapse on a major scale. The cost, if there is one, is that the associated trading strategies bring a temporary collapse of asset prices for some period of time (how long?) or perhaps greater ongoing price volatility, or uncertainty about order execution, in the short run.

When I read that HFT may give markets "a new, currently unknown set of emergent properties" I think buying opportunity.

4. Research by Hans Stoll indicated that program trading was not in fact an instrumental culprit behind Black Monday in 1987, yet media coverage of HFT seems to be indicating that it was. Many of the HFT debates echo themes from the earlier program trading debates from the late 1980s but in fact program trading did not turn out to be a major problem. We have been down this path before and it turned out there was much less there than the critics thought at the time.

5. The more I read these debates, the more nervous I get about the idea of a financial products safety commission. Essentially on innovation we're seeing a flipping of the burden of proof and I don't think it is possible to easily fine-tune that flipping in a way to capture good innovations and rule out bad ones. We should still follow the rule of regulating practices shown to be harmful or likely to be harmful.