Securities Market Structure Redux

Flash trading, dark pools, lawsuits over proprietary trading code, whopping payouts to computer greeks that create trading programs, and other news have led Senator Kaufman to call for a "broad SEC market study."  Great,  The SEC does not need more encouragement in its efforts to restructure the securities markets.  The debate is an old one.  Should we have -- 1) a centralized securities market for each security traded with the SEC and an SRO regulating the process, a clearing house limiting credit risk, and the Fed monitoring overall market risk or 2) a "fragmented" market of multiple trading venues linked by arbs that "exploit" trading price discrepancies. The issue is not whether arbs make too much money but whether trading prices are less volitale and trading costs are lower for normal trading in 1) or 2).  1) has the disadvantage of discouraging innovation with government ossification.  2) has the "advantage" of being inevitable in a world trading market.  We need to live and deal with 2).