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Proprietary Trading
- Thread starter cigarno
- Start date
A large client buy order is likely to move the mkt. If, knowing this, the prop desk executes a large buy order of its own in front of the client, the mkt will move, thereby forcing the broker to buy at a higher price on behalf of the client. Once the execution of the client order has pushed the mkt even higher, the prop desk can unwind the position. Otherwise, the prop desk could just sell into the client flow. Either way it makes money.Quote from cigarno:
True...But that does not mean they can make money this way....they will just pick up shares at a cheaper price than you, that is all
Front-running is free money.
I find it funny that so many are interested in institutional front running when so many overlook prop/retail internalization.
Internalization has a much larger impact on the vast majority of ET members. IMO, if more people understood this many of the retail BDs and lower tier prop shops would see a mass exit of customers.
Mutual Funds, ETFs and hedge funds could be front run but not much else, few individuals have size enough to bother with.
Internalization has a much larger impact on the vast majority of ET members. IMO, if more people understood this many of the retail BDs and lower tier prop shops would see a mass exit of customers.
Mutual Funds, ETFs and hedge funds could be front run but not much else, few individuals have size enough to bother with.
Quote from WinstonTJ:
I find it funny that so many are interested in institutional front running when so many overlook prop/retail internalization.
Internalization has a much larger impact on the vast majority of ET members. IMO, if more people understood this many of the retail BDs and lower tier prop shops would see a mass exit of customers.
Mutual Funds, ETFs and hedge funds could be front run but not much else, few individuals have size enough to bother with.
+1, Insightful
There are enough lawyers and regulators involved that I don't think front-running is a problem.
Retail/prop shops generally give their customer the ability to customize routes. It's the smart-routing logic that I find questionable, because smart-routing is fundamentally broken in the day of internalization. What is the "smartest" venue if the decision is based on lit-venues, when the liquidity is not visible? You can't probe unlit venues and necessary get the best price if latency is now a factor, too. The whole NBBO concept is broken in this new framework.
Quote from WinstonTJ:
I find it funny that so many are interested in institutional front running when so many overlook prop/retail internalization.
Internalization has a much larger impact on the vast majority of ET members. IMO, if more people understood this many of the retail BDs and lower tier prop shops would see a mass exit of customers.
Mutual Funds, ETFs and hedge funds could be front run but not much else, few individuals have size enough to bother with.
WinstonTJ, could you possibly elaborate on the nature and mechanics of "prop/retail internalization"?
Thanks.
Quote from rsi80:
WinstonTJ, could you possibly elaborate on the nature and mechanics of "prop/retail internalization"?
Thanks.
From Bright Trading, detailed description on how internalization impairs public price discovery, and discourages displayed liquidity.
http://www.sec.gov/comments/4-602/4602-29.pdf
Quote from Martinghoul:
A large client buy order is likely to move the mkt. If, knowing this, the prop desk executes a large buy order of its own in front of the client, the mkt will move, thereby forcing the broker to buy at a higher price on behalf of the client. Once the execution of the client order has pushed the mkt even higher, the prop desk can unwind the position. Otherwise, the prop desk could just sell into the client flow. Either way it makes money.
Front-running is free money.
Or trade it "fat in the back".
Quote from cigarno:
Thank You......But still the question remains......the quote says "Obviously, a firm's proprietary desk trading ahead of pending customer orders is probably the first conflict of interest."
example: If I place an order to buy or sell 100 shares of Citibank and my broker places the same order for its own book ahead of my order. HOW does that hurt me?
Guess we have no issue IB running prop desk. But it is a problem if Goldman, Citi and other MMs are running prop desk.
Do you know that listed companies are required to notify them in advance about earnings or any major event. This is needed so that they can do their market making function without any issue.
And they can trade from their own account too. When they short something; they are 100% sure about the profitability...
Isn't it nice? I would love it if I am other side of fence... But I hate it from where I am right now....
Go figure...