Exchange records trade and disseminates quote simultaneously (as required by reg) to multiple third party recipients with no delay. This information is available at network connection point/device located at the Exchange facility to all parties. The role of the Exchange in this process stops here. What third parties use to transmit and how they process it is beyond Exchange control other than meeting minimum technical requirements.
One recipient chose and invested in direct high speed connection to that information (HFT and others) and second chose to use slower standard connection and also processes and consolidates that information as required (NBBO) re-stamps it on its own computers and disseminates it. All parties involved source the information from the same point at the same time. The time difference shows up later and is result of network, processing, programming, distance etc.
Exchange does not offer two different tapes - it is byproduct of access type and processing delay to primary information by third party. Re-stamping takes place on off exchange computer and this is beyond Exchange control.
Since NBBO is official pricing tape it seems logical that regulation left big loophole requiring to disseminate quote "no later" instead of making sure that other recipients are not seeing that information before NBBO publishes it. One option would be to require exchange to wait for feedback from NBBO that quote has been published before sending it to other clients like HFT.
As far as I remember issue with NYSE and other exchanges was order flashing to certain participants meaning that exchange gave them window into order flow for x milliseconds to accept or reject and then send it to matching engine. SAC is insider trading and I cannot find anything HFT related there. Similarly market news companies were disseminating information on preferential basis and it has been found questionable or outright illegal.
Yes it is unfair system created by regulator and supported by infrastructure. Somebody just figured it out how to make money out of it but they should not be blamed for shortcomings of others. Remember in its pure form HFT does not have customer. After all this is Capitalism and free country.
It seems then that primary beneficiary of this setup is broker who handles order flow or locals on the exchanges. They can subscribe to different feeds and and internalize customer orders on NBBO while trading on direct feed. HFT has no customers so they are going after each other or the brokers/institutions and probably that is why having their lunch money taken by HFT there is a push to ban it by institutions and brokers and general public just falls for it. For me and many others HFT is irrelevant other than decreasing cost of trading ( commission and spread).
Fix regulations and infrastructure and check what brokers are doing when internalizing orders and engaging in naked shorting.
