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A limit on distance is in effect a speed limit. It means anyone that is able to reach the limit has a shot at competing. Whether that is good or not, or makes a difference or not is another discussion, but you can certainly affect the competitive situation massively that way.

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Competition is already high, and colocating is not that expensive for anyone with the ability to compete.

A lot of the loudest criticism of HFT is that it's too competitive - a lot of people who used to make a comfortable living from the bid/ask spread are no longer able to due to computers driving down profit margin.

But they're not really competing on the absolute scale of how fast they can execute a trade, but rather on how much faster than everyone else they can execute. If everyone else is slowed by an equal amount, the game doesn't change at all.

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