"Logically, it is impossible to blame high-frequency traders for this 65% rise in close-to-open volatility, because there is no trading when the market is closed. This volatility reflects one thing and one thing only — markets react to news, and since 2007, there has been an abundance of news which has caused investors to panic. This 65% increase in volatility is particularly revealing when it is juxtaposed against the comparable difference when the markets are open. From 2000-2006, the S&P 500 moved an average of 0.76% between the open and close of the same day, compared with 0.85% since 2007. In other words, volatility during trading hours has increased only 12% during the exact same period when volatility during non-market hours has increased 65%, less than a fifth of what would be expected. Using this direct apples-to-apples comparison, it is impossible to escape the conclusion that markets are now significantly less volatile during trading hours than they would otherwise be in the absence of computerized trading. To a rational and unbiased observer, this ought to make perfect sense. Volatility is caused by panic behavior. Computers don’t panic, humans do. Virtually every academic study on the topic has concluded that the effect, if any, of high-frequency on market volatility is to lower it. This is hardly surprising — high-frequency traders are known to go home every day with no positions, which requires them to buy and sell in exactly equal amounts every day (and in most cases, intraday as well). To argue that such an approach can have a material effect on stock prices requires some serious contortions of logic."

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HFT Is NOT Responsible for Market Volatility – You Are! - High Frequency Trading Review’s blog - High Frequency Trading Review

I don’t disagree with anything that is said here. But I’d like to know what percentage of market volume can be made up of HF trades before the system collapses under it’s own weight?

As I’ve said before, alpha only comes from diverging from the herd. The inflection point on a strategy from over to under performance occurs when the trade gets crowded. We’ve gone from almost 0% to 50%+ of daily trading volume being HFT trades in less than a decade. Where do we top out? 75%? 85%? And what does it say about the capital markets as a functioning mechanism to allocate capital to its best use when the job of the public equity and credit markets is to allow managements in companies to give microsecond access to HFT funds who zip them around the global financial markets only to redeem them at the end of the day?