For markets to work one must try to get as much trading as possible on them. Only if the majority of trading happens on markets will markets be able to effectively discover prices.
If one puts such artificial limitations on markets, than there is always a danger that people will not trade there. If people trade in side deals instead of the markets, then markets would not be able to discover prices and all kinds of inefficiencies would result from the uncertain prices. For example if you put in your limitation, there will be occasions where both buyers and sellers will want to buy and sell at a certain price but the exchange will simply not let them. In this case the buyers and sellers will try to meet and do the transaction outside of the exchange and that is usually a bad thing.
I think there are other ways this can be fixed. For example one may even the playing field by simply adding a clock to the market so that all trades must happen on clock "ticks". This would prevent the advantage of HFT. Or the exchanges could just stop selling offer data to the HFT people. This would not cause the market problems discussed above, because it would only remove things that actual market participants do not have anyways. Thus, these measures would not remove any actual supply or demand from the market.
The solutions are not hard to figure, the problem is that exchanges do not want to implement them. Exchanges make a lot of extra money from HFT and want to keep and grow that money even if endangers uncertainty in their markets.
For example one may even the playing field by simply adding a clock to the market so that all trades must happen on clock "ticks". This would prevent the advantage of HFT.
No it wouldn't. At 12:00:00:001, all the HFT's will race to place an order and be the first in the queue. At 12:00:01:000, the fastest HFTs will be the ones to trade.
Additionally, if news occurs at 12:00:00:998, the HFTs will all race to cancel their orders as fast as possible.
If one puts such artificial limitations on markets, than there is always a danger that people will not trade there. If people trade in side deals instead of the markets, then markets would not be able to discover prices and all kinds of inefficiencies would result from the uncertain prices. For example if you put in your limitation, there will be occasions where both buyers and sellers will want to buy and sell at a certain price but the exchange will simply not let them. In this case the buyers and sellers will try to meet and do the transaction outside of the exchange and that is usually a bad thing.
I think there are other ways this can be fixed. For example one may even the playing field by simply adding a clock to the market so that all trades must happen on clock "ticks". This would prevent the advantage of HFT. Or the exchanges could just stop selling offer data to the HFT people. This would not cause the market problems discussed above, because it would only remove things that actual market participants do not have anyways. Thus, these measures would not remove any actual supply or demand from the market.
The solutions are not hard to figure, the problem is that exchanges do not want to implement them. Exchanges make a lot of extra money from HFT and want to keep and grow that money even if endangers uncertainty in their markets.