[smallnamespace]

If you prevent banks from doing the riskier forms of market making, then that responsibility will move to firms that don't have access to customer deposits.

Because their capital base is less stable, they will be more prone to stop making markets precisely when you need them most. That will probably make extreme volatility events like flash crashes much more likely.

This is already happening today to some extent:

[1] https://www.bloomberg.com/view/articles/2016-10-07/flash-cra...

[2] https://www.bloomberg.com/view/articles/2015-06-03/people-ar...

'In the new system, the market makers are computers, and when things get hairy they just stop buying pounds and walk away with their computer hands in their computer pockets, whistling a jaunty tune out of their computer speakers.'

[jhulla]

There is always a market for your asset. You might not like the price. Market makers that are not tied to TBTF banks would actually be more responsible because there is no safety net.

Aggressive traders who understand market structure can and will profit.

I remember flash crash days - my trading platform stopped responding - I could not get quotes and I could not do trades. I desperately wanted get a fill at the flash sale prices. No dice for me. Some friends who had stops in place found out that their broker had automatically sold their positions at deep discounts. Aggressive traders (with working platforms) benefitted for sure.

[missbit]

which platform was that? I am on IB & schwab. I've noticed on high volume days the Schwab desktop platform is not as available. Plus, Schwab has no up/down status page. Interactive Brokers has been more available & has the up/down status.

[Retric]

Volatility can be highly valuable in the long term to keep markets honest. Without that there is a tendency to add leverage until something far more significant breaks down.

[mannykannot]

It doesn't work that way if you make significant bonuses on the wins and the client takes the losses.

[smallnamespace]

Generally not this sort of volatility though: https://en.wikipedia.org/wiki/2010_Flash_Crash

[Retric]

The S&P 500 erased all losses within a week, but selling soon took over again and the indices reached lower depths within two weeks.

So, arguably the rebound is what was odd not the dip. There is a bias when looking at stock markets that says up is good and down is bad. However, accuracy is vastly i more important for the overall economy.

[lmm]

That's fine. The market is effectively becoming more sensitive; it's reacting to news quicker, rather than creating an illusion of stability.