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Comment by onetimeusename | Hacker News Reader

I am just surprised no one questioned the partnership between Alameda and FTX. The equivalent would be something like if a large HFT firm like Citadel, Virtu, or one of the others had the same ownership with a brokerage like Robinhood or Charles Schwab or even formed a partnership. I think the financial media would be questioning the incentives.

I read in the WSJ today that Alameda had indeed done price arbitrage trades on the FTX exchange. The closeness of these two firms should have raised questions I think. I really don't know a lot about it because I was never involved in either FTX or Binance. But I think most financial journalists are trained to spot disincentives and corruption that come with marrying trading firms and exchanges. So I am surprised that did not happen leaving aside other questionable items.

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Many people saw it as a positive that FTX had a "built-in" market maker. People also thought that Alameda were geniuses.

It's considered a cost of doing business that all offshore crypto exchanges are trading against their own customers.

>> The equivalent would be something like if a large HFT firm like Citadel, Virtu, or one of the others had the same ownership with a brokerage like Robinhood...

Yeah.

Doesn’t Robinhood sell order flow to Citadel?

Not just Robinhood selling order flow. Robinhood was just the first to say "we can make enough money with order flow, so let's cancel trading commissions".

Other brokers really hated that.

yes. It was widely reported on and criticized though and I believe the SEC decided not to ban it. This article[1] has some details but it seems like the SEC may not be able to. However, none other than Gary Gensler criticized the practice. That's my point is how different the reporting was on RH versus FTX over a similar practice.

edit: FWIW this is not even the biggest issue. Alameda making bets with FTX customer money seems to be the biggest problem. I am bringing this up because closeness between a trading firm and an exchange might have been an early clue to financial journalists that the relationship should be scrutinized.

[1]: https://www.cnbc.com/2022/09/22/robinhood-jumps-after-report...

Remember that the SEC exists because a bankrupt banking sector begged the government to give them a fig leaf. If you aren't sure who they serve, go looking for a punitive fine that's been levied and distributed to any victims of financial crime. Gensler appears to have skin in this FTX game personally, natch.

Brokers like Robinhood would love to not have to rely on a third-party market-maker, because it can vertically integrate. Citadel had the years of its life during the bull run in great part to RH.

Market making can be neutral, it's not a big conflict of interest. What is a conflict of interest is placing bets in the market with what can be information of traders on the FTX platform - i.e. people buying solana and Alameda leveraging that direction on the information - or people leveraging on FTX and Alameda making liquidating plays.

After Glass- Steagal was repealed, structural conflicts of interest putting the totality of supposedly safe deposits at the service of gambling has been standard operating procedure for the street and hence the country.

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