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In HFT (which, admittedly, is not "pretty much everyone who works in quant finance"), the issue is that rules about market manipulation designed for humans operating over timescales of minutes become dangerously vague when applied to computers operating over timescales of hundredths of a second. The rules against spoofing and layering are fundamentally the application to modern markets of the rules against the tape manipulation frauds of the 1920's that were brought in by Joe Kennedy's SEC after the 1929 crash. But those rules define crimes based, at least in part, on dishonest intent (which experienced practitioners can infer from behaviour). Inferring intent from behaviour is harder when one computer is ripping off another computer in a novel way, so it is harder to enforce the rules fairly, and more opportunity for unfairness. There are plenty of people who think that the distinction between what Navinder Singh Sarao was jailed for doing and what Citadel and Renaissance do on a daily basis is Who?, Whom?
The other areas of quant finance (derivatives pricing, risk modelling, quant hedge funds other than HFTs) do not operate in legal grey areas. There are also HFT strategies which do not operate in legal grey areas, such as Jane Street's ETF business.
This seems largely correct.
The who/whom thing it always felt to me like they needed to hang someone and he was the easiest to hang. Citadel supposedly has been a big backer of anti spoofing prosecutions because it negates some of their speed advantages and models. But they get sued too they just have better lawyers and do a fine job getting out of trouble. Witness them refusing to pay a WhatsApp fine.
I also fine it funny that the whole GMC/AMC trades (no idea if they made internally) they did seem to lose some money investing in the fund that blew up. I’ve always thought the GMC/AMC longs were guilty of market manipulation. Basically organizing a group to manipulate shorts into trading (puking) their position. Which would be illegal if three people with big war chests organized the move together. But done in a distributed way is tough to nail any one person for.
Do you mean GME (Gamestop) or GMC (Post-BK General Motors)?
I agree with you that the SEC could have got a conviction for market manipulation against DeepFuckingValue if they wanted it, but equity short sellers are even less popular than market manipulators, so nailing a short seller is safe politically. Both the 1920 Stutz and 2008 Volkswagen corners nailed some of the biggest, best connected players in the market, but there was no interference by the authorities. In both cases the longs ended up running out of cash because in the process of executing the corner they bought the target company for more than it was worth.
Doing that in a commodity futures market, where the shorts include non-financial end users hedging their real-world risk, will get you hauled off in handcuffs.
Ya of course.
I mean the law should be the law. I don’t know if deepvalue crossed the line. I know chamath tweeted short squeeze and encouraged people to play which might cross the line. And he’s lost a lot of people money with his promotions.
Short sellers might not be popular but the fund that blew up does provide a real service. They keep retail losses lower by shorting.
I guess that’s a who/whom case but maybe the distributed nature of it protected him. I tend to think not.
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