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First, I never said it was a great idea, or that we should. It's not about envy or not. Liquidity provides a great service, if we need long market hours. If we

• alchemist1e9 2y ago
  > If we as a society want long liquid trading markets, then we need people like Jane Street to provide that liquidity. If we don't want long liquid trading markets, we can eliminate them and force buyers and sellers to meet all at a given point in time. One is not necessarily better than the other, it's a trade-off. This is categorically false. Long electronic trading hours are simply a better solution, a more fair solution, a more competitive solution, a more efficient solution, and what the market is demanding. There is no trade off, especially as most liquidity is supplied by automated systems that can operated 24/7/365 if needed. When you compress transactions into specific time frames it isn't about forcing buyers and sellers to meet, you actually will reduce the numbers of buyers and sellers overall, you will lower the value of the asset, because assets are given liquidity premiums. The more you restrict transactions and reduce liquidity the less utility an asset has. This is one of the often overlooked reasons Bitcoin has more intrinsic value than is assumed at first by observers. When a primary issuer creates new securities this is very different situation and why an auction is needed, for example for new treasury bonds or any other initial offering. In that situation there is only 1 seller, the issuer, and the question is what is the starting fair price at which buyers appear. In a secondary market there are many current owners of the asset and many potential sellers. They don't decide to sell or buy independently and then meet. That is simply not what occurs. Instead think that every current owner is a potential seller and every participant who follows that market is a potential buyer. Sellers attract buyers, buyers attract sellers, both when they push the prices around via the market makers. By extending the time period for this dynamic to occur to continuous central limit order books (CLOBs) it make the most efficient process, periodic auctions have been proven to be very poor ideas and results in choice paralysis of participants, CLOBs incentivize higher rates of decision making and healthier dynamics. All properly operated CLOBs will also have a circuit breaker to auctions should time be need to digest rapidly changing information and the continuous book can't be created within some limits. By having extended market hours you widen the pool of buyers and sellers who can participate. You also allow markets to instantly digest new information as quickly as possible, this is most fair to all participants equally. Extended trading hours are strictly better than restricted trading hours.
  • zie 2y ago
    You seem to imply I think it's better without them. I'm not saying that at all. I'm saying we could do it without them, if we, collectively, wanted to. Is there a cost to that? Of course there is, there is a cost for any big change like this. Private Equity seems to do just fine without any of these liquidity problems. Bond Markets are completely private still, sure some market makers are now playing in that space, but it's still completely private transactions and you are on your own to find buyers and sellers. Seems to work well enough. Certainly public markets and stock exchanges are great inventions, but we didn't have market makers in the early stock markets for a very long time. Well one might argue JP Morgan(the man, not the bank) was THE market maker for all of the NYSE early history. He certainly bailed out the markets once or twice before the Fed existed and decided to do the job for him. So we can absolutely do it without market makers. So I stand by it being a trade-off. If one really wants to kill off market makers, we can, that doesn't mean we should. > The more you restrict transactions and reduce liquidity the less utility an asset has. This is one of the often overlooked reasons Bitcoin has more intrinsic value than is assumed at first by observers. This would imply that Cash should be more valuable than it is? USD cash has near infinite liquidity, but at best it's worth around 0%/yr real return.
    • alchemist1e9 2y ago
      This is you: > You seem to imply I think it's better without them. Yet these are also all you: > We could essentially close them down if we moved all trading to say 1 hour a day. > If we as a society want long liquid trading markets, then we need people like Jane Street to provide that liquidity. If we don't want long liquid trading markets, we can eliminate them and force buyers and sellers to meet all at a given point in time. One is not necessarily better than the other, it's a trade-off. I responded that it is incorrect. You claimed that restricted hours and/or auctions are not necessarily worse, implied better for various envy based objectives that are commonly voiced in many of the comments under this article. I am contenting that Continuous CLOBs with extending trading hours are technically better markets in every possible measurement. That is my position, it’s unambiguous and different than yours. I’d suggest you would prefer ambiguous positions that would elicit agreement and convey virtue than to take a hard stand for or against a topic. > Private Equity seems to do just fine without any of these liquidity problems. PE notoriously has liquidity issues. There are private platforms for qualified investors. PE also is focused on primary issued securities not secondary open free markets which we are discussing. So your observation is both irrelevant and incorrect. > Bond Markets are completely private still, sure some market makers are now playing in that space, but it's still completely private transactions and you are on your own to find buyers and sellers. Seems to work well enough. Bond markets are very very far from private. They are completely open but just not to small time investors other than indirectly via ETFs, which ironically the article explains is a massive source of income for Jane Street as they transfer institutional liquidity and prices into individual accessible ETFs. However the underlying cash and futures and options markets on both government, municipal, and corporate bonds are completely public and to any operator who can post the required collateral and meet the technical participation requirements. Trade sizes are often $1M notional minimal. In fact corporate and government bond markets are highly competitive and have extended trading sessions. So again you are technically incorrect. > Certainly public markets and stock exchanges are great inventions, but we didn't have market makers in the early stock markets for a very long time. Yes you did. Market making was a dedicated profession going back to the earliest exchanges and markets, including in Dutch empire, also in Roman empire times. Gold market makers / dealing in bazars is 1000s of years old. I have no idea why you would believe such an incorrect opinion. > Well one might argue JP Morgan(the man, not the bank) was THE market maker for all of the NYSE early history. He certainly bailed out the markets once or twice before the Fed existed and decided to do the job for him. JP Morgan was a market manipulator and crony capitalist who using corruption bailed himself and his associates out of loses using the FED. Your example is extremely ironic if you actually understand what happened. > So we can absolutely do it without market makers. So I stand by it being a trade-off. If one really wants to kill off market makers, we can, that doesn't mean we should. > > The more you restrict transactions and reduce liquidity the less utility an asset has. This is one of the often overlooked reasons Bitcoin has more intrinsic value than is assumed at first by observers. > This would imply that Cash should be more valuable than it is? USD cash has near infinite liquidity, but at best it's worth around 0%/yr real return. This is a misunderstanding of the liquidity premium. Holding all other attributes constant of an asset, the intrinsic value, the income rate, all other relevant factors, then a more liquid asset vs less liquid asset with the same other attributes will have a higher market value. This is basic stuff.
• EMM_386 2y ago
  > Liquidity provides a great service, if we need long market hours. If Jane Street is so critical to the normal functioning of markets that their significance between "exists" and "don't exist" is a major change in liqudity, then they are a systemic risk. They probably don't want to be viewed as a systemic risk to the financial system. But when you are siphoning this much money out of the financial systems worldwide (to the point your employee equity looks to be going almost logarithmic), how much further can this go until "providing liquidity!" isn't good enough any more? That's been the go-to answer since forever, anytime anyone questions what value is being added to the economy.