What a beating yesterday was. We are not talking about the market beating, but the beating that high frequency trading took in the media. With every triple digit loss day comes a brand new spanking for HFT. Even though we are enjoying the HFT pummeling, we must admit that some of the thrashing is starting to come from poorly informed market participants. Check out the below comment from an interview on CNBC by value investor Marvin Schwartz of Neuberger Berman:

“There was no high-frequency trading four years ago. What permitted high-frequency trading, in my opinion, to occur was when the SEC [Securities and Exchange Commission] removed the uptick rule.”

Uh, no. HFT was not formed because of the removal of the uptick rule. While we applaud the new participants who are jumping into the debate, we also want to make sure that they are speaking out for the right reason. To blame HFT or the lack of an uptick rule for the woes of the market lately strikes us as just a convenient excuse for some investors. After all, HFT is not only active when the market goes down, it is also very active when the market goes up.

The thing about HFT is that it amplifies market movements. HFT does not analyze fundamental metrics of corporations, it analyzes data patterns. It looks for the real investors and then simply trades faster than them. On slow, grinding up days, HFT is there and very active. It spots the VWAP orders that have been sliced and diced by the algorithms and always stays one step ahead of them. Most of the people complaining about HFT over the past two weeks never said anything before as long as their stocks were going up. We wonder if they even realized that every time they were buying stock that they were also feeding the HFT monster.

As panic sets in now and real sellers get more aggressive, market moves are being amplified even more by HFT. Investors are shocked at the speed of the decline and are looking for villains. They are right to blame HFT for exacerbating the decline. But HFT itself isn’t the real problem.

The real problem is the market structure that allows these market participants to operate the way they do. The real problem are the regulations that the SEC has put in place over the past decade which has created the current fragmented market where HFT thrives. The real problem is that exchanges are constantly bowing to HFT pressure and giving them new tools to operate so that the exchange can increase their bottom line. The real problem is that there is currently nobody in DC that understands that the equity market has been hollowed out and sold to the highest bidder. The real problem is that the equity market no longer is helping to raise capital and has turned into a micro second casino.

Problems like these can be overlooked for some time especially if the market goes higher. However, it’s now time to address these problems. It’s time for alternatives to the current and conflicted equity market structure.