> Then we'd race to see who could cancel as close to 5s as possible.
That would reduce the scope of the problem by an order of magnitude or more, because it would limit the benefit of being fast to only those trades to which you yourself are already a party and to which you so happen to receive actionable information at exactly the point in time that the trade is about to close.
And then on top of that, you can put a small penalty (e.g. 1c per share) on canceling a trade to be paid to the other party, which should put a quick end to thoughts of initiating and then canceling several million trades per second that you don't actually want to make.
Regulating trading on speed or time is inherently silly.