5 ms·
This is a good summary of a typically rational article by Matt Levine. His entire commentary on the industry post-"Flash Boys" is similarly enlightening and bal
by scrumper 12y ago
This is a good summary of a typically rational article by Matt Levine. His entire commentary on the industry post-"Flash Boys" is similarly enlightening and balanced.
There is a striking parallel in the futures markets: Their original role was to help farmers hedge their risk of bad harvests by setting a fixed price for future delivery of foodstuffs. That market overtly and explicitly requires that there be hedgers and speculators, otherwise - no trade. Dark pools are no different, for the reasons you nicely outline above.
You could argue that what Barclays really should have done was channel some retail flow into LX, but sources of that kind of unlimited, innocent liquidity get snapped up pretty quickly.
- rayiner 12y agoI've been quite impressed with Matt Levine's articles. Also, while I realize that Bloomberg probably exerts zero editorial control over View, I've been quite happy with Bloomberg's Wall Street coverage as of late.
- arjunnarayan 12y agoI'd put Matt Levine, Felix Salmon, and Aswath Damodaran as my top three finance list. Matt, in particular, is very no-nonsense in his coverage, and uses simple, short sentences that are very helpful\ when you lack some of the jargon/background.
- foobarqux 12y agoHe's intelligent, well educated (Harvard, Yale Law), worked at the top firms in M&A law and derivatives sales (Wachtell, Goldman) and then left to write articles about finance. You can't ask for much more than an intelligent former insider with excellent writing skills who wants to explain financial news to others. He makes other journalists look as uninformed as they are.
- danielweber 12y agoLevine has very very quickly become one of my favorite writers, because of 1) his ability to say "Here is an animated picture of a stoned Wall Street bull pouring Doritos into his mouth next to a pink bong because why not"[1] in the middle of an article, and 2) his pointing out of incredibly obvious things that most commenters seem to miss. (Why was Barclays lying about the existence of the HFTs in the dark pool to the institutions who make it orders of magnitude more money than the HFTs? Because they need the HFTs to service the institutional investors.) [1] http://www.bloombergview.com/articles/2014-06-20/levine-on-wall-street-teen-idols-and-tender-offers http://www.bloombergview.com/articles/2014-06-20/levine-on-w...
- rs 12y ago> You could argue that what Barclays really should have done was channel some retail flow into LX, but sources of that kind of unlimited, innocent liquidity get snapped up pretty quickly. To add to this: another issue with retail flow is price and volume. Only a few really big players out there have enough of this flow to make it interesting to institutional traders.
- tankenmate 12y agoHowever a number of futures markets used to have rules that the size of the market positions of speculators weren't allowed to exceed the size of the market positions of the buyer / sellers; this was to prevent the speculators driving the market rather than the buyers / sellers. The most famous of these is probably the position limits imposed by the Commodity Exchange Commission (forerunner of the Commodity Futures Trading Commission) in 1938 on the commonly traded grains. In most countries these limits have been removed over the last 20 years or so. The debate on the necessity of such limits is still ongoing...
- Marazan 12y agoTheir original role was to help farmers hedge their risk of bad harvests by setting a fixed price for future delivery of foodstuffs. Not quite they were also to allow downstream businesses to fix their inventory costs, that would be the hedgers that you allude to. That is the original purpose of a futures market to allow both the suppliers and consumers to hedge risk. Initially futures markets were restricted to individuals and businesses that dealt in the product covered by the futures contract, but over the years 'speculators': actors who at no point want to accept a delivery of the product managed to get themselves into the system. Speculators are simply middlemen between the actual producers and actual consumers of the futures product. They do not add value to the system, literally the last thing in the world they want to happen is to actually have two containers of pork bellies turn up at their door step. Futures markets work absolutely fine without speculators as their is intrinsic value in a futures market for both producers and consumers without a revolving cavalcade of middlemen getting in the way of settling contracts.
- pdovy 12y agoSpeculators get a bad rap, but actually play a pretty important role in futures markets by aiding price discovery and providing a more efficient transfer of risk between hedgers. To make money they need to try and accurately forecast where prices will move, and to do so will incorporate any and all available information - it is literally their job to try and know everything there is to know about what will effect commodity prices. There has also been quite a bit of academic research on the effect of speculation in futures markets, and by and large the conclusion seems to be that they help, rather than hurt these markets and rises in commodity prices have been driven mostly by external factors [1]. [1] http://www.forbes.com/2011/05/24/oil-speculators-are-your-friends.html http://www.forbes.com/2011/05/24/oil-speculators-are-your-fr...