{"id":10628,"date":"2015-08-02T07:17:15","date_gmt":"2015-08-02T12:17:15","guid":{"rendered":"http:\/\/olduvai.ca\/?p=10628"},"modified":"2015-08-02T07:17:15","modified_gmt":"2015-08-02T12:17:15","slug":"the-tenth-man-floor-monkeys-and-the-decentralization-of-risk","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=10628","title":{"rendered":"The Tenth Man: Floor Monkeys and the Decentralization of Risk"},"content":{"rendered":"

The Tenth Man: Floor Monkeys and the Decentralization of Risk<\/a><\/h3>\n

As most of you know, I used to be a clerk on the floor of the old P. Coast options exchange in San Francisco. What a place. I could tell stories about that floor for weeks. The craziest things you ever heard.<\/p>\n

But let\u2019s keep it professional. The funny thing about a trading floor like the PCX (or the NYMEX, or the CME) is that you have winners and losers. You have big winners and big losers. You have people who blow themselves up. You have people who blow themselves up so spectacularly, they take a chunk out of their clearing firm.<\/p>\n

In very rare cases a clearing firm has gone down. But never, ever has a public exchange, a clearinghouse, blown up. Never happened. Probably never will happen. I feel pretty comfortable making that prediction.<\/p>\n

It was intended that way. Let\u2019s say you have a crowd of 100 locals in a pit, and some hedge fund calls his broker with such a toxic trade that it blows up a few guys. But the risk is verydecentralized<\/em>. One trader isn\u2019t going to take out the exchange. Even a handful of traders aren\u2019t going to take out the exchange.<\/p>\n

The cool thing about public exchanges and open-outcry pits is that they take big risk and turn it into small risk. Which is pretty much the opposite of how we do things today\u2014where we take small risk and turn it into big risk.<\/p>\n

Liquidity Providers<\/strong><\/h4>\n

The whole business of providing liquidity (which is what floor locals used to do) has changed a lot in the last 20 years.<\/p>\n

That is the understatement of the century.<\/p>\n

It\u2019s what\u2019s turned the NYSE from a bustling marketplace into a glorified TV studio. It\u2019s what turned the AMEX, the old curb exchange, into\u2026 nothing. Not much left at the CME, except for some options pits in the grains and meats.<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The Tenth Man: Floor Monkeys and the Decentralization of Risk As most of you know, I used to be a clerk on the floor of the old P. Coast options exchange in San Francisco. What a place. I could tell stories about that floor for weeks. The craziest things you ever heard. But let\u2019s keep […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[6024,487,7758,690,7759],"class_list":["post-10628","post","type-post","status-publish","format-standard","hentry","category-economics","tag-cme","tag-liquidity","tag-mauldin-economics","tag-risk","tag-risk-decentralization"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10628","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10628"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10628\/revisions"}],"predecessor-version":[{"id":10629,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10628\/revisions\/10629"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10628"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10628"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10628"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}