With thousands of hedge fund PhDs all trying their damndest to exploit the market, adding delay will change the game but not eliminate it.
Only by when the market is efficient (in the technical economic sense) is it non-exploitable by smart guys. Efficient markets require all players to be rational, so not in this world.
Precisely. Information asymmetry is what allows the exchanges to be profitable. It is a continuous wealth transfer along the information gradient, with the most knowledgeable investors capturing most of the wealth from the least knowledgeable.
As long as this asymmetry exists, the vast majority of trades will constitute a zero sum wealth transfer.
Just because perfect efficiency is not attainable, that doesn't mean we shouldn't strive to get as close to perfect efficiency as we can.
There are issues with regulating markets (serious ones given the imbalance of resources between regulator and banks you point out), but it is not impossible.
Only by when the market is efficient (in the technical economic sense) is it non-exploitable by smart guys. Efficient markets require all players to be rational, so not in this world.