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I think that the definition in the parent's comment is erroneous. You don't have to be a market maker in order to front run; any broker-dealer can do it. That

I think that the definition in the parent's comment is erroneous. You don't have to be a market maker in order to front run; any broker-dealer can do it. That said, I think you're off a bit on the nomenclature, too. Market makers can indeed have clients. For example, [1] is a list of the Chicago Mercantile Exchange's market makers for equity options. Citigroup, which has clients out the wazoo, is on the list. It's (presumably) just that the market making operations themselves are not done on behalf of a client. You're maybe conflating the concept of a market maker with that of a proprietary trading firm. It's very common for market makers to be prop shops. Prop shops, by virtue of not having clients of their own, are perhaps some of the least-well-positioned firms to engage in frontrunning. But a player like Citigroup or Goldman Sachs (which does a fair bit of currency and interest options market making) could have a relatively easy time of it. [1]: https://www.cmegroup.com/trading/equity-index/e-mini-equity-index-options-rfq-contact-directory.html https://www.cmegroup.com/trading/equity-index/e-mini-equity-...

JumpCrisscross 8y ago
> Market makers can indeed have clients Market makers generally don't have clients. Once upon a time, I was a big-bank algorithmic equity derivatives market maker. We only had counterparties. Sometimes, those counterparties were our own bank's sales-trading desks. We were isolated from them, in terms of supervision and information access. (The sales-traders had clients.)
- BonesJustice 8y ago
  I work on a market making team at a major investment bank, and I can back this up. There is a very clear and serious separation between those who trade bank funds and those who trade client funds. We are not allowed to know anything about their positions, accounts, strategies, etc. (and vice versa). Not only are there very stringent access controls in place to prevent cross-contamination, but there are physical boundaries as well. When the guy who runs the business side of our team started collaborating on a project with a team that did client trading, he had to move off our trading floor and into an office, and we had to revoke this access to, well, pretty much everything. He wasn’t allowed to go near our traders’ desks. It stayed that way until the project ended.
- SEJeff 8y ago
  Just going to second this. I used to work for Virtu, which bought Getco and the smoldering pile of ashes left from Knight Capital’s meltdown almost solely for their Designated Market Maker status for so many symbols.
- twic 8y ago
  There is a miscommunication here, arising from the fact that bunderbunder thinks that 'Citigroup' is an entity, and is clearly both a market maker and has clients, whereas you (and other professionals in the field) think 'Citigroup's equity option market making desk' and 'Citigroup's prime brokerage division' are entities, and are clearly only one of those things each. People at a distance from organisations see them as monolithic. People closer to them see them as coalitions of distinct entities.
Misdicorl 8y ago
You can't front run as a market maker, because a market maker literally cannot have clients. Thats like the first rule about market makers in most regulatory environments. Saying otherwise excludes you as a person who knows anything about the details here. A parent company could operate both a market maker and agency/broker businesses side by side. Leaking information from the agency/broker to the market maker operation is illegal. Perhaps you think I am nitpicking here, but the point is the bad guys in OPs example are the broker/agency which illegally sell/give away their clients information. Their illegal behavior is not predicated on the existence of the market maker. The market maker is simply an easy bogeyman for people who don't know what the hell theyre talking about.

JumpCrisscross 8y ago

> Market makers can indeed have clients Market makers generally don't have clients. Once upon a time, I was a big-bank algorithmic equity derivatives market maker. We only had counterparties. Sometimes, those counterparties were our own bank's sales-trading desks. We were isolated from them, in terms of supervision and information access. (The sales-traders had clients.)

BonesJustice 8y ago
I work on a market making team at a major investment bank, and I can back this up. There is a very clear and serious separation between those who trade bank funds and those who trade client funds. We are not allowed to know anything about their positions, accounts, strategies, etc. (and vice versa). Not only are there very stringent access controls in place to prevent cross-contamination, but there are physical boundaries as well. When the guy who runs the business side of our team started collaborating on a project with a team that did client trading, he had to move off our trading floor and into an office, and we had to revoke this access to, well, pretty much everything. He wasn’t allowed to go near our traders’ desks. It stayed that way until the project ended.
SEJeff 8y ago
Just going to second this. I used to work for Virtu, which bought Getco and the smoldering pile of ashes left from Knight Capital’s meltdown almost solely for their Designated Market Maker status for so many symbols.
twic 8y ago
There is a miscommunication here, arising from the fact that bunderbunder thinks that 'Citigroup' is an entity, and is clearly both a market maker and has clients, whereas you (and other professionals in the field) think 'Citigroup's equity option market making desk' and 'Citigroup's prime brokerage division' are entities, and are clearly only one of those things each. People at a distance from organisations see them as monolithic. People closer to them see them as coalitions of distinct entities.

Misdicorl 8y ago

You can't front run as a market maker, because a market maker literally cannot have clients. Thats like the first rule about market makers in most regulatory environments. Saying otherwise excludes you as a person who knows anything about the details here. A parent company could operate both a market maker and agency/broker businesses side by side. Leaking information from the agency/broker to the market maker operation is illegal. Perhaps you think I am nitpicking here, but the point is the bad guys in OPs example are the broker/agency which illegally sell/give away their clients information. Their illegal behavior is not predicated on the existence of the market maker. The market maker is simply an easy bogeyman for people who don't know what the hell theyre talking about.