3 ms·

i don't think dhh actually understands what a marketmaker does.

by joshu 16y ago

tptacek 16y ago
I bet you're wrong, based on what little I know of his social circle in Chicago. But (sincere question): what's the thing he said that tripped your alarm?
- joshu 16y ago
  A marketmaker is someone who stands ready to both buy and sell at some published price. They're aggregating a deal which they are then reselling. That's more like a broker-dealer, I guess. Taking principal risk in what might eventually IPO is more of an underwriter. Actual marketmakers tend to try to go home with no risk on the books, because they have no interest in exposing themselves to gap risk. I think lots of people have casual understandings of what financial terms mean and then just sort of guess the rest of it (much like people think SecondMarket is the secondary market; it's not.)
  - tptacek 16y ago
    All I'll say in direct response to this is that Chicago is not a trading backwater, especially at the small-scale entrepreneurial level. I'd put money on him passing the Joshua Schacter Trading 101 exam. (Seriously, it sounds like a fun bet.)
baguasquirrel 16y ago
No, I'm pretty sure he does. The details of the deal are complicated. Most of the money that Goldman is going to invest for Facebook is not coming from Goldman itself, though Goldman will invest almost half a billion of its own money.
- joshu 16y ago
  What does a marketmaker do?
  - tptacek 16y ago
    They sell liquidity, Josh. They quote bid and ask price spreads and rejigger them like bookies to keep an order flow. They extract a premium from dumb money that wants to trade now, which offsets the tax that the smart money in turn extracts from them by knowing more than they do. That's the basic idea. But having established that order flow, isn't part of the point of being a market maker to (carefully) speculate based on information they get from being at the center of the order flow? Is Goldman a by-the-numbers market maker? Of course not. You're obviously right; a much bigger part of the point of being a market maker is to keep two-sided order flow and not soak up risk. But that doesn't make it totally asinine to compare Goldman's role as the primary facilitator in (what I assume is a) thinly traded market to that of a market maker. Knowing your background, I'm sure you know this stuff better than I do; don't hand me my head for taking a stab at your question (or, do; >shrug<). I'll go toe-to-toe with you on FIX and order routing any day, though. ;)
    - joshu 16y ago
      BTW, it's Joshua. The point of being a literal marketmaker is someone who stands ready to buy or sell at a published price at all times. The implication is that it is an ongoing position - they do so over time. There's a bunch of things that a marketmaker has to do to do his job, but then there are the things he does that defines the job. Does that make sense? The simple fact is that Goldman is not publishing a price in it right this second, and you can't call them up and buy or sell shares right now. The marketmaker's job is to literally make a market. They aren't doing that. Just providing some liqudity. Re: FIX and order routing: Do you know what a hidden quantity is? No fair googling. I concede on FIX, though.
      - tptacek 16y ago
        Sorry, it's the josh-u in the name. "Tom" bugs me a bit too. You're obviously right regarding Goldman not publishing prices; I'm just saying, being sloppy about terms --- particular when you're just being sloppy about what kind of dealer we're talking about --- doesn't mean you don't know what a market maker is. I had to look iceberg orders up.
marcamillion 16y ago
I don't know that I would go as far as saying that. DHH has a point, in that the deal - as reported by NYT - will be part market making (through the SPV/SIV) and partly equity purchase. Sounds like FB put the $450M requirement as a gate price for GS to get the rights to do the other transactions - plus also handle the IPO when they are ready. Plus they get to keep the upside of the equity. Sounds like a pretty sweet deal - if you asked me - for both FB & GS. GS pushes the bulk of the risk on to it's investors, while potentially participating & handling one of the most anticipated IPOs in Tech since Google. Win/Win/Win.

i don't think dhh actually understands what a marketmaker does.

by joshu 16y ago

i don't think dhh actually understands what a marketmaker does.

I bet you're wrong, based on what little I know of his social circle in Chicago. But (sincere question): what's the thing he said that tripped your alarm?

joshu 16y ago
A marketmaker is someone who stands ready to both buy and sell at some published price. They're aggregating a deal which they are then reselling. That's more like a broker-dealer, I guess. Taking principal risk in what might eventually IPO is more of an underwriter. Actual marketmakers tend to try to go home with no risk on the books, because they have no interest in exposing themselves to gap risk. I think lots of people have casual understandings of what financial terms mean and then just sort of guess the rest of it (much like people think SecondMarket is the secondary market; it's not.)
- tptacek 16y ago
  All I'll say in direct response to this is that Chicago is not a trading backwater, especially at the small-scale entrepreneurial level. I'd put money on him passing the Joshua Schacter Trading 101 exam. (Seriously, it sounds like a fun bet.)

baguasquirrel 16y ago

No, I'm pretty sure he does. The details of the deal are complicated. Most of the money that Goldman is going to invest for Facebook is not coming from Goldman itself, though Goldman will invest almost half a billion of its own money.

joshu 16y ago
What does a marketmaker do?
- tptacek 16y ago
  They sell liquidity, Josh. They quote bid and ask price spreads and rejigger them like bookies to keep an order flow. They extract a premium from dumb money that wants to trade now, which offsets the tax that the smart money in turn extracts from them by knowing more than they do. That's the basic idea. But having established that order flow, isn't part of the point of being a market maker to (carefully) speculate based on information they get from being at the center of the order flow? Is Goldman a by-the-numbers market maker? Of course not. You're obviously right; a much bigger part of the point of being a market maker is to keep two-sided order flow and not soak up risk. But that doesn't make it totally asinine to compare Goldman's role as the primary facilitator in (what I assume is a) thinly traded market to that of a market maker. Knowing your background, I'm sure you know this stuff better than I do; don't hand me my head for taking a stab at your question (or, do; >shrug<). I'll go toe-to-toe with you on FIX and order routing any day, though. ;)
  - joshu 16y ago
    BTW, it's Joshua. The point of being a literal marketmaker is someone who stands ready to buy or sell at a published price at all times. The implication is that it is an ongoing position - they do so over time. There's a bunch of things that a marketmaker has to do to do his job, but then there are the things he does that defines the job. Does that make sense? The simple fact is that Goldman is not publishing a price in it right this second, and you can't call them up and buy or sell shares right now. The marketmaker's job is to literally make a market. They aren't doing that. Just providing some liqudity. Re: FIX and order routing: Do you know what a hidden quantity is? No fair googling. I concede on FIX, though.
    - tptacek 16y ago
      Sorry, it's the josh-u in the name. "Tom" bugs me a bit too. You're obviously right regarding Goldman not publishing prices; I'm just saying, being sloppy about terms --- particular when you're just being sloppy about what kind of dealer we're talking about --- doesn't mean you don't know what a market maker is. I had to look iceberg orders up.

marcamillion 16y ago

I don't know that I would go as far as saying that. DHH has a point, in that the deal - as reported by NYT - will be part market making (through the SPV/SIV) and partly equity purchase. Sounds like FB put the $450M requirement as a gate price for GS to get the rights to do the other transactions - plus also handle the IPO when they are ready. Plus they get to keep the upside of the equity. Sounds like a pretty sweet deal - if you asked me - for both FB & GS. GS pushes the bulk of the risk on to it's investors, while potentially participating & handling one of the most anticipated IPOs in Tech since Google. Win/Win/Win.