There's nothing scammy about inverted venues. Those who choose to trade there do so knowing they will get hit first. Buy siders who don't want their brokers to leak information when sweeping should get better brokers. These are professionals we're talking about here. They should have the wherewithal to understand the market they are participating in.

So then, it is basically a bait trap to exploit those without the wherewithal. That's a quite different proposition than the standard claim that HFT benefits everybody (even the mediocre participants) by lowering spreads and making the market more "efficient."

"Scammy" might be a loaded word. In any case, I'd like to hear a sensible purpose to the inverted fee structure.

Inverted fee structures allow the maker to value fill priority over rebate. In a maker taker structure the net price paid is higher on an inverted venue therefore implicitly allowing them a higher spot in the virtual cross-venue line (although not guaranteed).

Takers who get paid at inverted venues understand and are compensated by rebate for the information they provide to the market. Their net price is less than what they would pay elsewhere and the cost of doing so is less access to liquidity (inverted venues typically show a lot less size) and potentially more information leakage (although, it is time dependent).

Bear in mind that if you look at the markets near transition, there is often times no posted orders on the weak side of the NBBO. Makers typically don't like to stand in front of the truck as its rolling towards them. The argument that inverted venues leak as buy side sweeps is fairly weak given this reality.

Well who does want to stand in front of a truck? That's the risk every participant takes, "makers" should have to eat it just like everyone else. Not conspire to invent umpteen different order types and fee structures which enable them to shirk the risk and skim off mom & pop's retirement fund any time the market starts to look shaky.

And if mom's broker doesn't understand that the taker rebate leaks more information than its worth, that's just tough on mom. Mom can't just get a better broker, she's locked into her IRA through the workplace. This is a zero-sum game with some people on the take while mom & pop get the shaft.

I encourage you to watch this conversation between Haim Bodek (HFT whistleblower) and Manoj Narang (CEO of Tradeworx). It should inform your view on this subject and help you understand why many of the order types we have exist. Notably, they are all a result of locked markets and handling orders at level transitions. Vast majority if not all HFT would be happy to see the locked market ban revoked and an elimination of these order types.

http://insider.thomsonreuters.com/link.html?cn=share&cid=122...

Traders who post orders have no negative obligations in the current market structure. In previous years market makers were given special privileges for negative obligations. The best known example were NYSE specialists. A specialist post at the NYSE was extremely lucrative. If you believe previous short-term intermediaries made no money you should consider that Goldman bought SLK, a large well known specialist, for 6 billion. They recently sold the unit off for 30 million. In 2014 HFT profits IN TOTAL are estimated to be between 1 and 1.5 billion (http://www.prnewswire.com/news-releases/rbc-capital-markets-...).

Market makers with negative objects and special privileges has lost out as a model to non-contracted market makers who post liquidity. The posted liquidity is very real and completely tradeable. RBC's Thor smart order router is proof of this as it achieves 100% fill rates (http://www.prnewswire.com/news-releases/rbc-capital-markets-...)

With respect to Mom & Pop, you should investigate what an internalizer is. Nearly 100% of all retail order flow is sold to a wholesaler. Wholesalers like Knight, UBS, etc trade with that flow and provide payment to the broker to do so. Mom & Pop who submit an order from Fidelity or Ameritrade get amazing execution. If you read about and follow the current debate, you'll find that no one is disputing this. What they are disputing is whether buy-side institutions (for example, Mutual Funds) acting indirectly on behalf of Mom & Pop are being disadvantaged. I argue that these institutions have a responsibility and the capability to select competent brokers to execute their large trades. They ARE professionals, after all. Lest you think ALL buy side firms dislike HFT I refer you to Vanguard's comment letter to the SEC, which you can find here: http://www.sec.gov/comments/s7-02-10/s70210-122.pdf In it you'll find a firm with about 2.5 trillion under management disagreeing to a large extent that HFT is bad. Finally, with respect to retail brokerages, you can read Charles Schwab perplexing condemnation of HFT here: http://pressroom.aboutschwab.com/press-release/corporate-and... This is from a firm that sells nearly all of its order flow to UBS for internalization within its dark pool by HFT and other firms. Go figure.

I recommend educating yourself on this debate. It is highly nuanced and very complex. The US equities markets have many facets that go well beyond the displayed market and HFT. The vast majority of professionals in this business would agree on 90% of the desired regulatory change: faster SIP and allowing locked markets are two large ones. You'll also likely get a large consensus on eliminating all payment for order flow including rebates paid by lit venues as compensation for posting resting orders and absorbing adverse selection risk.

Take care.

Thanks a lot for taking the time to put those links together. I didn't expect such a response. Much appreciated..