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Comment by minimax | Hacker News Reader

I think labeling literally all human market makers as "crooked" is probably excessive...

I've done a fair bit of exchange work, and the stories I've heard suggest I'm not far from the mark.

What about all the human market makers that went on to found HFT firms. DRW, GETCO, Jump, Virtu, etc. Bad guys as well?

I do not believe DRW is colluding with Virtu to keep spreads wide. In fact, all available evidence overwhelmingly suggests that the opposite is happening.

But human market makers colluded routinely, and in some cases famously.

Do you think when Don Wilson (founder of DRW) was making markets in the pits at the CME in the 80s that he was colluding with anyone is more what I was asking. Does he deserve to be labeled "crooked as a barrel of fishhooks?"

Maybe? I mean, he's been in hot water much more recently than that for trying to fix the market. http://www.bloomberg.com/news/articles/2016-03-09/manipulati...

On that case I think I agree with the Matt Levine take that "Back in September I was pretty sympathetic to DRW and after reading the CFTC's complaint. I'll double down on that.†" I guess we'll see what happens.

My only point was that some people think all HFT is bad, and here we have a complaint that actually the situation is reversed and it was actually all human market making that was bad. I don't think either statement is completely true, and I was trying to highlight the contradiction because the human market makers and the HFTs are, in a lot of cases, the same people.

† https://www.bloomberg.com/view/articles/2013-11-06/cftc-sues...

Alright, it's hard for me to explain how sometimes all means all and sometimes it doesn't. But tptacek's comment didn't literally say that every last floor trader was crooked, just that was generally true. And it's easy to see how it could be true. A wink here, etc. The difficulty for anyone to see the size of the order book.

I think it's harder to describe how HFT is bad. Most of the efforts in this thread are, we'll say, only loosely connected to reality.

The best you can say about sweaty men shouting is that if not corrupt, still inefficient. (To say nothing of spreads in eighths.) I think that's a claim that really is true for literally every trader.

I don't think people on the floor were necessarily all crooked or doing something illegal, but that market structure doesn't invite fierce competition. You'd see the same people every day and go to drinks with them. There was a real camaraderie between people on the floor, even if they were ostensibly competitors. Think of any community. Most people would probably work a little harder to have a nicer car than their neighbor, but they wouldn't want to see the neighbor's family starve to death in the process. By undercutting your rivals in the pits, you were literally taking away their mortgage payment, and you had to do it to their face. A lot of the locals in the pits were independent, so it was personal, not just business.

You also could see who was on the other side of your trade. Savvy floor traders would use that information to their advantage. If a sharp broker traded with you, you could hedge more aggressively or speculate in the same direction. Most electronic markets are anonymous these days so there's less information leakage.

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