It happens both up AND down. This last monday was really the first time they'd been tested en mass.
These people increase market liquidity, they too serve a purpose. If only long term investors were in the market, the exchanges would end up looking like ebay.
A 'stop loss' order will sell once the share price falls below a threshold. It will sell using a market order, meaning whatever the current best price might be.
A 'stop limit' order will sell once the share prices falls below a threshold too, but will sell using a limit order, setting a minimum price that you're prepared to be paid.
In a crashing market, stop loss orders can result in you selling stocks for pennies, regardless of their rational worth. Stop limit orders protect you from excessive price drops.
It might slightly favor HFTs if things do change across those 5 minute downtimes. Otherwise, your orders should be just as valid before the freeze as after, no?
If they really feel that a circuit breaker serves does something useful here (and I'm skeptical this is the case) they should stop trading for longer periods of time and allow a larger window between haltings in order to allow all trade participants put in an order and not just a few of the fastest HFT engines.
I don't see what you think extending the circuit breaker time would accomplish? "Allowing a larger window between haltings" would defeat the whole point - if the price moves by more than 10% immediately after the re-opening auction, the circuit breaker goes off, as it's supposed to, for all the reasons it goes off whenever there's a sudden >10% price move.