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"I agree with Senator Schumer in that flash orders create a privileged client category which gets first right of access to the liquidity. The current debate reveals the level of competition between the incumbents and new market players. Liquidity fragmentation has continued to increase even in these uncertain times, and the viability of any venue is determined by how much success it has in attracting and retaining the liquidity.
The need to obtain transparency across the different venues is key to the long term health of the market place. Venues are now facing a new set of adaptive technologies, utilised by brokers/intermediaries and by the investor community, for real time decision making and seeking liquidity. The flash order approach is a tactic to attract order flow into a venue and retain that order flow. However, such an approach may trap flow within the venue. The use of adaptive algorithms obviates this by ensuring keeping a view on all markets and moving out of the flash order if an order is not filled and an alternate market is available.
Senator Schummer must also recognize that these broker and buy-side adaptive smart order routers are able to deal with these new venue offerings without reducing the transparency level."

The past year has clearly demonstrated not only a lack of investment in risk management, but also, as you stated, a reliance on theoretical assumptions to determine portfolio risk management valuations (see the now famous Taleb’s Black Swan book which considers our thinking to be usually limited in scope and talks to how we make assumptions based on what we see, know, and assume. Reality, however, is actually much more complicated and unpredictable than we think).

The traditionally tight relationship between the hedge funds and their prime brokerage is certainly gone, and therefore they need to disenfranchise themselves by acquiring their own technology. I agree with the fact that the surviving hedge funds, and one might want to remain sceptical about the doom figure of 75% hedge funds failing, should focus on investing what brings tangible benefits to them. Execution systems, especially in the current multi-asset, multiple broker / alternative execution landscape, requires at least buy-side smart order routing.

It also seems logical that more people will migrate to trading directly via multi-asset trading systems. This means that the moribund retail online trading will gain market share. This time though, it will come not with an equity bubble, but with investors which have already gone through multiple bubble / bursts.