Oh no... you have it all wrong... They are providing a service for the greater good.
They provide Liquidity.
There are two groups in the market. The investors (people) that provide capital for enterprise and the companies (businesses) that use capital to organize to provide goods and services to consumers.
The stock market operators (electronic exchanges) are making a buck at our expense... the normal participants are paying a toll for something they do not (in effect) need. At least in the way they are doing it.
The (extra) Liquidity (they claim) could be helpful but not if it comes at the price of deceptive practices (fake bids to manipulate) and market instability (wild swings and flash crashes). We had enough liquidity the last 300 years and even 10 years ago. I don't see how things have improved.
The rules need to be changed to adjust for technology changes.
They should begin charging for withdrawn trades. That would eliminate the arb opportunity and the disruption. The transaction cost would not affect even the largest entities... they are only placing trades that they legitimately into to execute. the cost of the withdrawn trades are nothing.
But a computer that places 100 M trades in a day and withdraws 95 million (fake shill trades) and executes 5 M to extract a toll on the suckers who place a market order... or your limit order at its minimum because they drove the price down to it and then further to sell it quickly to make a buck on it.
Only a fool thinks because they placed a market order that they did not lose! They perhaps protected themselves from a flash crash... that is about it.
However.... the millions that use open ended mutual funds do not have that sort of ability. They have to accept the closing price. There are many other examples of situations where people can't protect themselves.
This practice is essentially corrupting the market by exploiting it. Someday HFT will be written into the history books (of the stock market) just like the more primitive manipulation tactics (of the past) when there was an actual auctioneer (1700's) and shills to drive up the price. Or when it was legal to manipulate the market with a fake newspaper article.
Stock Market History
Following the War of 1812, the largest growth area in the American economy was that of building turnpikes and canals .The Landcaster Turnpike, finished in 1794 was one of the first privately financed roadway in America .One of the first collapses of the new American market was in 1825 . During this economic downturn the New York exchange lost half of its volume and did not recover till 1831. As stocks in the early period were free from regulation, stocks were liable to be manipulated by politicians and speculators who would salt newspapers with stories and stock manipulation .
Let's face it, they are exploiting a crack in the system that no one intended to be exploited (except the people who figured out a way to shake the rest of us down).
Since the exchanges support it as a profit center (pay for special system access)... how can the regulators effectively investigate... Since it is the exchanges computer system and network (e.g., NYSE) how can they investigate?? They are not going to get cooperation for a group that is making money on it! There is almost no way an outsider can study this sort of situation quickly... it takes insider who know the system!! It will take years to really develop and understanding without their cooperation... then they will claim ignorance: "OMG we had no idea!" On to the next exploitation approach.
NYSE Tweaks Trading Prices to Appeal to High-Frequency Firms - Bloomberg