Here's a few links with some more thoughts on Flash Trading.
According to Reuters, recent measurements now indicate that naked high frequency trading now accounts for 38 percent of US equities trading.
Now it appears that the SEC are proposing to introduce new regulations governing the operation of such computer software. Here's their press release.
The press release is a bit confusing, and I'm not really sure that it is describing the same thing. It says, in part:
Through sponsored access, especially "unfiltered" or "naked" sponsored access arrangements, there is the potential that financial, regulatory and other risks associated with the placement of orders are not being appropriately managed. In particular, there is an increased likelihood that customers will enter erroneous orders as a result of computer malfunction or human error, fail to comply with various regulatory requirements, or breach a credit or capital limit.
The SEC's proposed rule would require broker-dealers to establish, document and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory and other risks related to its market access, including access on behalf of sponsored customers.
I'm mostly interested in this topic from the computer software point of view; this is clearly some extremely sophisticated software that is being used, and I'd love to learn more about how it works. It's possible to get hints about this by looking at things like job postings, but that's just a taste; it would be neat if somebody who actually knew what the software looked like would post a "architecture of a high frequency trading software system" article some day.