Two traders arrested for exploiting weakness in HFT algorithm

>> Making profit on the stock market is illegal now, if you are not an established firm?

Welcome to the real world ;-)

The established firms have a lot of political power and obviosly don't wont competitors.

"Veiby earned 250,000 Norwegian kroner ($40,698) in the alleged scam while Larsen earned 160,000 Norwegian kroner ($26,056)."

These sums are loose change in Norway, where a competent software developer makes 500-900K krones per year. They probably also had to pay 40%+ tax. These guys didn't thought they were doing something illegal.

It depends on the market, some equity markets have relatively strict market manipulation regulations that prohibit this kind of activity (in the same way you can't spread a rumour for the purpose of manipulating a share price).

One of the reasons banks have compliance departments is so that can check the legality of particular types of behaviour before they employ new trading strategies as there can be a very thin line between what's legal and what's not.

We don't. And I suspect that most HFT firms don't. There are both market and regulatory risks in placing an order you don't want to fill.