The claim that market makers pass costs on to end users is only true if they have pricing power. In reality, on-exchange liquidity provision is basically the kind of perfect competition that only exists in economics textbooks. Market makers are selling a commodity product (you don't care or control who you trade stocks with) in a market where buyers are purely sensitive to price (tightest market always wins and is enforced by exchange matching rules).
So what actually ends up happening in a market with multiple competitive market makers? To make money, a market maker needs to trade a lot of volume. The only way to trade a lot of volume is to put up the most aggressive (worse for the market maker, better for end users) prices at any time. Market makers can only do this by charging a smaller spread than their competitors. They can only charge a smaller spread by either reducing their margins or getting smarter at deciding when to be in or out of the market, usually a combination of both. The end result is extremely tight markets that react to information very quickly (i.e. cheap to trade and very efficient).
Competition keeps markets honest. If you had one very fast guy, he would clean up, but when you have a dozen guys who are roughly equally fast, they all compete one another down to barely making profit above their cost of doing business. Only the most efficient can survive. If anything, we want more HFT by removing barriers to entry rather than creating a lot of regulations that would ironically help incumbents by killing off weaker competitors.
So what actually ends up happening in a market with multiple competitive market makers? To make money, a market maker needs to trade a lot of volume. The only way to trade a lot of volume is to put up the most aggressive (worse for the market maker, better for end users) prices at any time. Market makers can only do this by charging a smaller spread than their competitors. They can only charge a smaller spread by either reducing their margins or getting smarter at deciding when to be in or out of the market, usually a combination of both. The end result is extremely tight markets that react to information very quickly (i.e. cheap to trade and very efficient).
Competition keeps markets honest. If you had one very fast guy, he would clean up, but when you have a dozen guys who are roughly equally fast, they all compete one another down to barely making profit above their cost of doing business. Only the most efficient can survive. If anything, we want more HFT by removing barriers to entry rather than creating a lot of regulations that would ironically help incumbents by killing off weaker competitors.