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> I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again.

can you expand on this? I have zero idea of what Jane street actually does and how they actually make money. (someone wrote that they have ~450 traders. trading what? equity? stocks? dark pools? PE? are they market makers? are they offering services to institution types?)

also what does "people's hard earned money" mean? you mean that Jane Street takes away their 401k or ... ?

They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread).

We could essentially close them down if we moved all trading to say 1 hour a day.

regular buyers/sellers can use limit orders, no?

speculators can then sell/buy to/from them and if they are doing it well, they make a profit. (and help narrow the spread.) sure, great, they even inject some liquidity. but why do we want a narrow spread? it only helps people who don't know which side of the trade they would rather be on, no?

The bid/ask spread is never good, as it is a fixed transaction cost no matter what side you play. In fact, the equity under consideration has to move greater than the spread to even realize a profit -- with the spread, you are always "buying high, selling low". With very narrow spreads, the spread is only a few cents at most and this consideration evaporates.

The spread also compounds quickly. A wide spread indicates low volume and a sparse order book. This means if you need to offload even say 100 shares, you can single-handedly as a retail investor, widen the spread yourself and take an even larger loss.

Liquidity injects supply/demand and its always a good thing for retail investors. It goes past the stock market as well, spreads are why pawn shops, thrift stores, and even eBay can be profitable in certain goods and with other goods, not so much.

I agree with @cityofdelusion's comment.

You can absolutely set limit orders, but depending on the limit, other people may or may not be willing to trade with you. Your order can sit all day and never be accepted.

If I want to sell AAPL, and set the limit oder to $1/share, buyers would take that trade instantly. But if I set the limit order to $10k/share, nobody would buy from me.

The exact same thing happens with the buy side.

It's like haggling with the vendor on the street corner or negotiating with your car dealer.

Think of it like a liquidity tax. Jane Street and other market makers(Citadel, etc) compete over that liquidity tax. The more often a fund, ETF or stock is traded, the lower the liquidity tax.

If XYZ Corp is very illiquid and only trades a few shares a month, then Jane Street will charge you a lot of tax to allow you to trade it instantly, because they have a harder time knowing what they can get for it a month from now when someone actually wants the trade.

You can see the wide range of bid/ask spreads for ETF's here: https://www.etf.com/sections/news/etfs-highest-lowest-tradin...

Notice something like SPY(S&P 500 fund) is basically free to trade, but something like EEH costs you a very pretty penny to instantly trade. For EEH, you might be better off re-issuing limit orders and just hoping someone comes along that wants that fund. If you let Jane Street or other market makers handle the trade, they will charge you more than it's worth to trade.

They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread).

We could essentially close them down if we moved all trading to say 1 hour a day.

Though most retail traders are upset they can only trade 7.5hrs a day, they want to trade 24/7 instead. They seem to WANT the liquidity and are apparently willing to pay for it.

Me, I'm fine with trading for only an hour a day, but I get not everyone is as lackadaisical as me.

Unless you have a better mouse trap to solve the liquidity problem, this is the best we have for now.

> They provide market liquidity.

I actually know a little about this space. You know what the easiest response is that is always the answer?

"We provide liquidity".

Sounds important, most people don't get it, it works.

But it's not like the market is going to grind to a halt if Jane Street disappears overnight. Of course, people will say that. Not people telling you the truth.

I actually considered "but, but, THE LIQUIDITY!" in my answer but I felt there was sufficient snark.

Agreed, orders maybe wouldn't fill quite as fast, but it's not like markets would fall over and die.

Yes they would. It would be a significant and catastrophic mistake to restrict trading based on feelings of envy. It would be technically negative in every measurement possible.

So many poor policies originate from Envy and poor reasoning not grounded in logic and understanding of free markets and economics. This would be yet another classic example of that.

As we have talked about in the other part of this thread, envy has absolutely nothing to do with it. Stop thinking it does. You are starting to sound like a broken record.

> It would be technically negative in every measurement possible.

Since you believe this so strongly, can you provide academic sources for this perspective?

> envy has absolutely nothing to do with it

Please do tell me then, what exactly motivates all the proposals for restricting trading periods or changing to auctions? All I have seen is that Jane Street and other make “too much money”. The reality is actually different they provide a service in 20 countries across all asset classes and do it for only $12B/year, that’s actually very cheap once the scope of their reach and operations are understood.

Please explain what is the motivation other than envy behind the numerous comments proposing some restrictions or claiming they aren’t worse or even better.

There are definitely academic sources that will backup my assertions however the irony is that my position somehow needs to be defended when it’s actually obvious to anyone who has spent a lifetime on the inside of the very system we are discussing and that somehow absurdist proposals about restricting market hours are accepted on face value without any rational or academic evidence whatsoever.

> They provide market liquidity.

That's funny, people say the same thing about ticket scalpers.

Event tickets are not usually subject to market forces, for good reason.

Don’t they?

Artists set too low of prices because they don’t want to be thought of as greedy. Scalpers expose the true market rate of the goods.

I do agree with you. It's neither sustainable not really desirable, the amount of effort and resources and smart people dedicated to the financial sector.

Less smart people are employed by the financial sector than in the past and less will be in the future.

Than in the past? That seems untrue at face, do you have a source? Firms like JS recruit a lot of people that wouldn't have ever considered a traditional finance institution in any event.

Ignorance leads to the assumption a piece of economic activity is zero sum. You see it everywhere

That sounds interesting. Are there easy sources for seeing what companies drive US equity market volume? My google-fu failed me but maybe I am missing something specific in the fintech industry that tracks that kind of thing . . .

> Are there easy sources for seeing what companies drive US equity market volume?

No. Flow data is quite expensive, and most providers will only provide bucketed data unless you contribute with your own flows.

OP obviously has no idea what he's talking about but hey, what wouldnt you do for some internet points.

> I see it another way. I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. And not just in the US, globally. This won't stop at 30% of the US equity market. It won't stop until the music stops and the last chair breaks. Which may or may not be soon. It will certainly be coming at some point.

Envious bullshit! The reason they are so profitable is that believe it or not they are replacing earlier operators who were less efficient and taking more transactions costs out of the system before. To be anti-Jane Street is the same as being pro-Big Bank of the past, that was taking more money out of the economy doing a worse job!

Unless you know the history of global financial markets and lived it then you don’t understand. For example in the late 80s the CBOT treasury bond bit had over 1000 traders in that pit. They were all making money and quite a few a huge amount. And there was many more people supporting those traders of the floor. That was just a single futures bond contract! With Jane Street we have 2,631 employees doing the equivalent job globally and for less total cost of at least 80,000 employees in late 80s.

The profits per employee are higher obviously but that’s the effect of technology and productivity but the total price being charged to the economy as a whole is much lower. This trend will continue and I would not be surprised in 10 years that a company of 200 people will provide the entire function of those 2600 today, and probably the profits per employee will be $10M per person. But that’s what we want, is a good thing not bad, portraying otherwise is just Envy.

> Envious bullshit!

No, no ... it's not.

First of all I don't care one iota about Jane Street or how much money Jane Street employees make.

The problem is that this money has to come from somewhere. And while you say it's due to the entire system becoming more efficient, that's not the full story. That $1 billion Indian options play came at the expense of Indian retail investors.

So yes, there is a siphoning of money out of the hands of the retail investors and into the vast pool growing under Jane Street and its employees, much as it has done under others like Citadel.

Who is that good for, except Jane Street?

If you look the per capita income from where it's leaving to where it's going, that's where I see a growing problem.

There may be a sucker born every minute, but that doesn't mean that this is all just about making markets more efficient.

And, of course, none of this would have been possible without the additional "liquidity" provided ... the clearly essential contribution that makes it all justified. "We provide liquidity!". Ok ... ?

There's some efficiency improvements too, but ... eh.