That whoever can shave 1 microsecond off the latency between New York and Chicago gets all the cookies seems a near market failure, but not really. I think that old fashioned economics will dilute that reward to its value, which is small but important.
There are many players in HFT. Of the traders there are those who specialize in certain sorts of information. Tweets, NY Times articles, News releases, etc. They each have custom software tuned, perhaps, to the identity of the reporter and sensitive to positive and negative adjectives concerning some company. Such software can buy or sell on microsecond time scales. Successively more sophisticated software keeps more complex economic models which take milliseconds instead of microseconds. Perhaps another stage of this until humans are invoked who keep models and see innuendos beyond the current ken of our fast robots. I see no problem with all of this and think it is Wall Street at its best as a contributor to our economy. I have briefly seen and understood SEC rules that were well meaning but soon circumvented. The net result was that the HFT software was more complex.
Actually I think that some SEC rules have pushed trading towards where they would end-up in a free-for-all world after complex evolution. I can’t imagine how to support such a belief however.