Even if the consumers of flash orders are not going ahead of a particular order, they are buying ETFs (exchange traded funds) and some kinds of derivatives that are linked to the underlying stocks and it all works together, said Merrin.
"It's pretty miraculous frankly that the SEC was able to take a scalpel and excise this bad piece of the market structure so quickly and basically leave the other parts that are actually good," said Merrin.
Of greater concern to Merrin is the idea that high frequency trading has become the majority of the market. According to Merrin, there haven't been enough studies done on the impact of high frequency trading, which has become the majority of the market. "What we have to recognize is that the market shifted in the last two years very significantly," he said. Traditionally the market has been made up of retail investors, institutional investors and market makers that facilitated these investors, he continued. "Today you have a whole new category which is high frequency trading, now making up 70 percent of the trading in the market according to some analysts," he noted. Two years ago, it was only 30 percent of the trades, so there's been a significant shift, emphasized Merrin. What's more, venture capital firms are funding the start- ups of high frequency trading houses, he noted.
"So we've shifted from an investor's market to a trader's market," said Merrin. "Clearly that has implications that people have to understand and think about," he said. He compared what's happening in equities to the commodities markets, where a bunch of energy traders moved the price of energy, not because of supply and demand factors, which is what usually moves commodities prices, but because of speculation.
There could be "a fundamental disconnect between the investor who takes a look at the fundamentals of the company or the industries they're investing in and the second-by-second traders who simply take a look at what's going on in that trading range. If the disconnect happens, that is going to affect how the rest of us, the institutions and the retail investors can invest going forward," said Merrin.