That would result in less efficient markets (which means higher spreads and more expensive transactions) and the market makers, who at present trade at high frequency, would capture more wealth than they do now.
Second, do you have any argument that isn't based on personal ignorance?
The stock market isn't even open at night, no one thinks that it is necessary to trade 20 times a second every second, they just want to. The stock market doesn't directly represent economic conditions, it represents investors assessment of economic conditions, thus it can change as fast as they can change their mind. If someone wants to only trade every ten seconds they can go ahead. If someone wants to open a stock exchange where everyone can only trade every ten seconds they can go ahead.
In the past the TWSE had a similar mechanism to the one you suggest: 30-second call auctions all day long (as compared to other exchanges who typically only had auctions at opening and closing time, and did continuous trading the rest of the day). Basically they'd give one best bid/ask update on a stock, gather new orders for a while (it was slightly random, sometimes as little as 22 seconds IIRC), match them at the volume-maximising price, and send out the new best bid/ask update. (Within this structure there was still time priority --- i.e. you only had to wake up once every 30 seconds, but when you did you had to send your new order ASAP. Also there was no atomic price amendment message ... you had to send an order delete and then an order create message, which caused all sorts of hilarity when they decided to take more than 30 seconds to send you a cancel acknowledgement.)
I read a study from 1998 basically supporting your position ... the authors concluded that "The call market method is more effective in reducing the volatility of high-volume stocks than low-volume stocks. This contradicts conventional wisdom which suggests that the call market method is superior for thinly traded stocks, while the continuous auction method is preferred for heavily traded stocks. The call market method does not impair liquidity and price discovery in the call market appears more efficient than in the continuous auction market." http://www2.hawaii.edu/~rheesg/Belgrade/Taiwan/TSEfinal.pdf
On the other hand, just a few months ago, the TWSE introduced continuous trading in response to pressure from exchange participants --- but only for warrants: http://www.twse.com.tw/en/about/press_room/tsec_news_detail.... http://www.twse.com.tw/en/products/trading_rules/mechanism01...
At this point I don't know yet of any detailed studies of the effects of that change. Also it's been years since I traded TW stocks, and I never traded TW warrants, so unfortunately off the top of my head I can't offer you an anecdotal account of the effects of the change either.
Now if you're a market maker it's very risky for you to offer a spread below 10pips because if the market moves by 10pips you're suddenly off-market and someone can arbitrage you by buying from you and selling on the market (taking a risk-free profit and pushing the loss onto you).
Now consider if the market was updating every 100ms and the price of EURGBP only moved by an average of 1pip every 100ms, it means you as a market maker can offer a 5 pip spread comfortable in the knowledge you can pull your price before an arbitrage situation occurs.
This lower spread you're offering is now available to your customers (who are likely to be other financial firms, big companies, and retail FX brokers). Because the retail FX brokers are getting a better spread they can offer a tighter spread to their retail customers.
This isn't just theoretical, FX spreads for retail customers (like folks going abroad or importing goods) are a lot tighter now than they were even a few years ago primarily because of faster trading.
And the market wouldn't be materially less efficient. The reason to have a market is to allocate resources towards effective producers by pricing them properly. Well, "no human could react quickly enough to buy the stock in New York and sell it in London before the prices reversed" means we know the market would inevitably correct that price even without the presence of that HFT. We are rewarding overinvestment in reaching price equilibria faster, when it already takes less time than it will for a producer to make any use of the money.
IMO. The main problem is that exchanges can't afford talented developers, they simply don't have the money to compete with the banks and hedge funds. Most exchanges have stop signals (i.e. a message they can broadcast that can stop computer trading, etc.) but often they fail to use them. Exchanges should be implementing algos to better detect abnormal behaviour (whether by human or computer) and prevent flash crashes before they happen.
The markets would trade at more "fair" prices (representing a a larger group of people) at slightly less frequency.
Vast sizes of stock ("block trades") already trade off-exchange in half-hourly crossings on posit, etc.
I think it's a bug in the system that this arbitrage can even exist, though. It's not like, say, rice, the location of your shares doesn't matter.
If an exchange limits trading to every 10 seconds, then those trades will just happen privately between firms. So now the privately trading firms will know the "real" price of the stock, but the people on the exchange will be left it the dark with the "old" price.
Once you hit the the next allowed trading period, everyone is going to be selling exactly simultaneously, which will cause a nosedive in the price. Institutional investors like pension funds are legally obliged to sell shares if they go past certain trigger points, so if the nosedive cause them to get triggered suddenly you have a lot more selling and a market in panic.
Different people have different requirements for speed, and this naturally smoothes out trading, forcing everyone to trade at the same time is just asking for a disaster to happen.
Plus there's all sorts of other complications. For example order matching. There's one buy order and 100 sell orders. How do you decide which sell order to fill ? - you can't do it by time of ordering anymore, but you need a transparent way to ensure fairness. So you randomize it. But then your rewarding whoever manages to put the most orders in, so you need a way to fix that, and then fix the problems in that fix and so on and so on until you end up with a horribly convoluted opaque system.