OK. So it's because there are multiple markets. We want multiple markets because competition, but multiple markets mean latency which means HFT using info from one exchange as a signal in another exchange.

If I could wave a magic wand then we would have one exchange which was run as a public service, by some beneficent person with no profit motive. I don't have a magic wand :(

I agree that the current situation is the result of the market structure (multiple competing markets) but I don't agree that this is how markets are supposed to work. The reason I say this is that people with no knowledge of market microstructure (e.g. ordinary people or people with undergraduate degrees in economics) would not expect this kind of 'arbitrage' to be possible. I hesitate to call it front-running because this is a term better reserved for instances where a client relationship and non-public information exists.

I take your point that the situation we have now (multiple exchanges without specialists) may be better than we had before (a single exchange with specialists) but I still don't think it's _fair_.

I wonder what would happen if I could wave my magic wand and have multiple exchanges with no specialists and zero latency...

Do you have opinions about a third proposal that's occasionally floated, (c) discretize the market's timeline to something smallish but not miniscule? For example, the market maker can move their quotes however often they want, but changes take effect on the next tick, which happens every (say) 1 second. So therefore you can't trade on advance knowledge in the sub-second range, and market makers can't gain a trading advantage vis-a-vis investors solely by having a slightly lower latency connection to the exchange.

It's possible there's some massive downside to that, but afaict the advantages of liquidity that market-makers provide mostly accrue at larger timescales. So it's not clear the millisecond-shaving game is really improving markets (though it provides interesting challenges for technologists).