Let's say you step in during a major market crash and buy AAPL when it's trading at $200/share. Let say it then rises some more to $300/share and you sell, only to see the price recover to $500/share. What happens if the exchange breaks your original buy at $200? Then you end up being short on the way from $300 up to $500, even though you were right about the direction of trading and contributed liquidity during market distress.
They've theoretically instituted a fix for this ( http://en.wikipedia.org/wiki/2010_Flash_Crash#Trading_curb ) which will make it clear in advance what trades will be broken, so we'll have to see how HFT and market making responds in the next crash. Bid-ask spreads tend to widen significantly during market distress, which should actually increase the profitability of being a market maker during a crash.
"To the tune of Ten of Billions" is that sooo material?
That amount's not unheard of for a single company, hedge fund, hell even individual (there was also that guy that loss 8 Billion).
If it's half of all trading volumne, but a tiny fraction of profit, then this is razor thin margins. In these areas, we've always been comfortable allowing the big boys in any industry (with their economies-of-scale) to execute efficiently, and hopefully compete each other out of ripping to rest of us off too bad.