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To: Win-Lose-Draw who wrote (121354)	10/31/2011 7:06:33 PM
From: HerbVic	Respond to of 213182

That's not what happens. When things get goofy out there, the bots dont start an oscillation dance with each other, they go to sleep. Literally. There are control panels with big red buttons on them that disconnect the machines from the data feeds. And they don't get turned back on until things calm down. The fundamental problem here is that we're trying to make markets "safe" for retail, when retail should not have more than lunch money exposure to what is a fundamentally dangerous market. The idea that market action is supposed to be differentiable is one of the most dangerous myths out there. It's not - normal price action is discontinuous in its natural state. My theory. Your theory. We're still talking theories here. Market microstructure theory states that the increasing price oscillation is due to MMs, on inferring potentially adverse market conditions, adjusting their trading ranges thereby increasing the band of oscillation, then vanishing from the market in the face of unanticipated increasing toxicity, leading to a drop in liquidity, exacerbating the oscillation of asset pricing. To say that the domination of the electronic market by as much as 70% HF transactions played no role in perpetuating the amplification of oscillations in the first place is just ludicrous. Like it or not, retail is very much a part of the market. But, I wasn't arguing for making the market safe. There are risks in investing of any kind, but the safer alternatives to equities are well documented. No, what I am arguing for is real markets, where the rules and activities are transparent to everyone. Market action is discontinuous. Normal price action is still a function of supply/demand corrective balancing. The discontinuous nature of the market derives from the discontinuous flow into the market of both supply and demand. Filling that gap with noise from inter-agency and intra-exchange trading action serves only the exchanges and agencies providing the markets, as it takes out stops and provides short term opportunities for short covering of extended positions, etc... I don't disagree with the MMs making money. I simply disagree with the method, where adverse selection is built into a made market favoring the maker.