The surge in volume we've seen lately has been good news for high-frequency traders, thrusting them back into the spotlight and perhaps into the black.

The surge in volume has led to another round in the battle over the value of these traders. We've noted that the best way to view high-frequency trading is as mechanism to trade stocks. It is not in and of itself a trading strategy. Rather it's a means to execute a strategy. That is to say, it's the new high-volume way to make markets or execute various arbitrage strategies. Some might quibble with that.

For example, if a fund does nothing but churn a single stock--say Bank of America--all day to capture rebates, wouldn't that be strategy? In that case is high-frequency trading more than just a mechanism but the strategy itself? We've seen various studies note the upside to this form of trading, notably the higher volume and the narrowed spreads, which people assume is good for retail investors. At the same time, various trade groups are calling for more research.

The Association for Financial Markets in Europe and the International Derivatives and Swaps Association, for example, have said that other impacts of this form of trading needs to be researched.  The anti high-frequency trading rhetoric packs a strong wallop. CNBC quoted one well-known value investor:

"These high frequency traders begin the day owning nothing and they end the day owning nothing in terms of common stocks. But during the day they're accounting for between 50 percent and 65 percent of the volume," said Marvin Schwartz.

The liquidity that is added to the market is "useless," with "no lasting value," he added. "It consists of orders that are placed and that are quickly retracted. It heavily, heavily consists of front-running."

These are incendiary words, but that captures the view of the high-frequency trading critics. Exchanges and regulators will have to address once and for all at some point as part of its market structure deliberations. All told, it will be hard to put this Genie back in the bottle.

For more:
- here's the CNBC item
- here's a MarketWatch article

Related articles:
The return of high-frequency trading  
Volume drought ends, but good times aren't back  
SEC subpoenas high-frequency trading firms