rgarcia already pointed out that your statement about institute C violating price-time priority is false. You then make a defamatory remark against the industry with zero evidence. Market manipulation is illegal. No respectable trading firm does it. Why? It is unethical and illegal.

In a zero sum game where knowledge is power, you know exactly who is buying and who is selling - before John Q. Public knows.

Since when was it the prerogative of every market participant to get quotes at the exact same time? There is a huge cost to colocation--it doesn't come free. The fact that trading has as high barrier to entry is a moot point. Starting a biotech company takes hundreds of millions of dollars in capital. Is it unfair to John Q. Public that Amgen and Novartis have competitive advantages in that field? Of course. Is it unethical? Absolutely not. When the steam engine was invented, was it unfair for guys who drove horse buggies? Of course. The new technology replaced him because it was able to do what he did, but more efficiently. This is no different. Day traders (I'm assuming that's what you're referring to when yous ay John Q. Public) are horse and buggy drivers. It isn't the fault of high frequency traders that they are that way. If John Q. Public wants to stay competitive, he has to change what he's doing.

If, instead, you're talking about your pension fund buying 1 million shares of Microsoft, then you have to realize that HFT is actually decreasing the cost of their doing that. Tighter spreads and more liquidity lower transaction costs for everybody.

Peruse this Forbes article, if you will - http://blogs.forbes.com/afontevecchia/2011/02/15/bernanke-pu....

I find it ridiculous that the article you cite makes no mention of HFT! In fact, I'm pretty sure that those profits are from their prop trading desks that don't do HFT. I can tell you that with certainty, because I know the ballpark of how much HFT firms make, and it's nowhere near that number. Please don't cite facts that are irrelevant to your point and then carry on as if they prove your case. I perused the article, did you even read it?

Having the advantage of being able to front run the markets is not limited to just market making, however. Limits are one of the ubiquitous features of stock markets - the ability to say, I will buy or sell X shares of this stick up until it hits price Y. This can be exploited easily by HFT/front running - you have 30 ms [2] to probe out where the limit is with small IOC transactions. In this way, you are able to meet orders at prices that are different than the currently trading price - effectively bypassing all competition.

Flash orders, if they're even used by anybody anymore, must account for some negligible fraction of market volume.

3. I have used HFT and front running as synonyms because they seem to be inescapably tied together. Why the need to have picosecond advantages if you aren't trying to beat another bottom feeder to the prey?

Market makers need high speed mostly to avoid getting picked off by other aggressive HFT firms. The prey isn't day traders, it's other HFT firms. Day traders don't operate on the same timescales as HFT. Just the fact that a day trader is using a mouse to enter and exit positions already precludes that possibility. If day traders are placing limit orders into the market and are upset that they can't cancel fast enough, they need to understand that their edge isn't in cancelling quickly, but purportedly something else (predicting longer term price movement?).

I'm all for a civil debate, but please checks your facts. Most of the sources you cite are irrelevant to this discussion :(