"It is interesting that Rick Bookstaber is the hired gun for HFT investigating. I know Rick and he was one of the quant guys at Morgan Stanley in 1987 that was touting "portfolio insurance" which ended up as the major cause of the crash. The strategy was to dynamically hedge your pension portfolio by shorting futures as the market deteriorated but the assumption was that markets are fully liquid and have continuous pricing which is never the case. He is a really smart guy, but so were the people at Long Term Capital & Enron and look where that got them."

David Fuller's view Well said, and I will never forget the "portfolio insurance" delusion, which was exposed when everyone tried to hedge at the same time. There are some entries on this subject in the Archive.