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A software change allowed FTX to use client money

reuters.com

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Re: A software change allowed FTX to use client money

#311

Post by anonymoushn »

meltedcapacitor wrote: post #203
adrr wrote: post #146

Earlier quoted context omitted.

I never understood why Alameda took risky bets when it could just make a bunch of cash off buy/ask spreads assuming trading volume was decent. Running the exchange they can front run any large trades and move the market.

Crypto is flooded with liquidity so market making is like selling ice to an eskimo. These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined. Front running large trad…

> Crypto is flooded with liquidity so market making is like selling ice to an eskimo.

This is not true at all, in general quoting in these markets is absurdly capital-intensive compared to tradfi.

> These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined.

Are the sophisticated tradfi players here yet? Seems like no?

Re: A software change allowed FTX to use client money

#312

Post by anonymoushn »

PeterisP wrote: post #296
silasdavis wrote: post #286

Earlier quoted context omitted.

How is information on order books non public? Usually crypto order books are public APIs.

It depends on the time, it's public after the fact, but not-public during the time gap where someone like Alameda could do front-running by managing to get in other transactions before the loser's orders get executed, or before any others get the chance to take that order.

Alameda was in general deeply incompetent. Front running your customers is not all that doable if you insist on using python.

Re: A software change allowed FTX to use client money

#313

Post by PeterisP »

headsoup wrote: post #293
mertd wrote: post #129

Earlier quoted context omitted.

I fail to see the equivalence. These are just loans with weirdly favorable terms. If the other bank had shareholders, then this would be a breach of the fiduciary duty. Otherwise it's just bad business? Bad business != fraud.

Isn't it fraud if you're telling you're customers you don't and can't do this?

I'm not sure why would that be fraud - who would be the defrauded party there? Offering wildly different conditions or prices to different customers definitely isn't fraud.

The other customers have no standing there, they have no relationship whatsoever that contract between the bank and another customer, they have no legal expectation to get the same conditions or to know what conditions other customers get. If the bank explicitly and intentionally lied that no other customers get so favorable conditions, that might be false advertising but I'm not sure, I'd expect a reasonable court to interpret that a bank "telling your customers you don't and can't do this" is exaggeration/puffery (i.e. permissible) and doesn't have to literally mean that they're not doing that for anyone, it means that they absolutely refuse to do it for you.

Re: A software change allowed FTX to use client money

#314

Post by Avicebron »

roenxi wrote: post #305
morelisp wrote: post #301

Earlier quoted context omitted.

> > Engineers are of course partly responsible for the things they implement. > That is outrageous. And this is why software engineering is a joke.

Engineers are responsible for strictly technical failures. When a piece of software does what a representative of company management asks for it hasn't failed. Software engineers are not lawyers and they are bad at interpreting laws.

This isn't how ethics works, just doing my job doesn't work legally.

Re: A software change allowed FTX to use client money

#315

Post by enkid »

roenxi wrote: post #297
TheNorthman wrote: post #243

Earlier quoted context omitted.

Probably because the whole Topf & Söhne debacle doesn't need repeating? Engineers are of course partly responsible for the things they implement.

> Engineers are of course partly responsible for the things they implement. That is outrageous. The company owners have limited liability protections. The employees should receive at least that unless they are in a position that requires specific legal training like an engineer legislatively appointed to be responsible for some safety function. Where they are appointed and remunerated specifically for their legal res…

Limited liability protects against financial loss, not criminal indictment. If you are an employee or owner and you do something to enable fraud the company as a whole is doing, you are still criminally liable.

Re: A software change allowed FTX to use client money

#316

Post by anonymoushn »

drexlspivey wrote: post #242
adrr wrote: post #146

Earlier quoted context omitted.

I never understood why Alameda took risky bets when it could just make a bunch of cash off buy/ask spreads assuming trading volume was decent. Running the exchange they can front run any large trades and move the market.

Yeah its not as simple as putting two limit orders and collecting your fee. Market makers take huge risks when there is a big market move. When Luna crashed for example Alameda provided exit liquidity to traders and was left holding the bag.

A lot of people have said this, but that day was easily the best day to be quoting. There was lots of volume on both sides all day, even as the price increment became very large compared to the price

Re: A software change allowed FTX to use client money

#317

Post by quickthrowman »

roenxi wrote: post #297
TheNorthman wrote: post #243

Earlier quoted context omitted.

Probably because the whole Topf & Söhne debacle doesn't need repeating? Engineers are of course partly responsible for the things they implement.

> Engineers are of course partly responsible for the things they implement. That is outrageous. The company owners have limited liability protections. The employees should receive at least that unless they are in a position that requires specific legal training like an engineer legislatively appointed to be responsible for some safety function. Where they are appointed and remunerated specifically for their legal res…

> > Engineers are of course partly responsible for the things they implement.

> That is outrageous. The company owners have limited liability protections.

The owners have limited financial liability, not limited legal liability.

https://en.m.wikipedia.org/wiki/Limited_liability

> Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership.

Re: A software change allowed FTX to use client money

#318

Post by vitno »

anonymoushn wrote: post #311
meltedcapacitor wrote: post #203

Earlier quoted context omitted.

Crypto is flooded with liquidity so market making is like selling ice to an eskimo. These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined. Front running large trad…

> Crypto is flooded with liquidity so market making is like selling ice to an eskimo. This is not true at all, in general quoting in these markets is absurdly capital-intensive compared to tradfi. > These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make mo…

Of course sophisticated tradfi players are in crypto and have been for years making hand over fist in money.

Source: I work at a firm that does this.

Re: A software change allowed FTX to use client money

#319

Post by rglullis »

roenxi wrote: post #305
morelisp wrote: post #301

Earlier quoted context omitted.

> > Engineers are of course partly responsible for the things they implement. > That is outrageous. And this is why software engineering is a joke.

Engineers are responsible for strictly technical failures. When a piece of software does what a representative of company management asks for it hasn't failed. Software engineers are not lawyers and they are bad at interpreting laws.

Engineering is all about working with constraints. Most of these are technical, but some of them are and should be ethical.

If the product of your engineering directly enables unethical actions, yes, you should bear some of the responsibility for it.

Re: A software change allowed FTX to use client money

#320

Post by liveoneggs »

batmenace wrote: post #280
smadge wrote: post #130

Imagine doing code review for this change. How do you say “I think this is illegal” without getting fired? Not that I would work for FTX.

You probably start by saying 'Hey I think this might not be fully compliant?' And if your boss comes back with anything other than a reasonable justification, you know there's something going on, and you should flag it higher up/leave that place

The market maker account is different from a regular customer account so the reflected balance will show the in-flight liabilities. Don't worry about it, the number is just an artifact.
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