On the surface, bid-ask spreads are far more narrow than even several years ago.
However, during periods of financial stress liquidity seems to vanish. Also, the increasing amount of fragmentation (i.e. new exchanges, crossing markets / dark pools, etc.) is moving markets away from deep central pools of liquidity. Combined with ultra-HFT linkages across markets there seems to be a potential for increased systemic risk via contagion. There also seem to be glitches -- such as today's 9% flash crash in Apple based on a 100-share trade. There's also research that at the micro-structure level price changes are now exhibiting non-normality (where previously this was observed only at lower frequencies).
The evidence seems mixed and anecdotal. How does this net out? Is there are any hard research on the effects of HFT on market depth, liquidity, and volatility during peacetime and periods of stress?