[yummyfajitas]

If you buy a stock from me, and I talk to 1000 more people just like you, who all buy more shares of the same stock, I will have a view that this stock is getting a lot of interest. Nothing illegal or criminal about that.

If you are in this position, you work in brokerage. You have this view, but since you don't work on the prop desk, you have no ability to act on it [1].

It is highly illegal for you to reveal this information to anyone working the prop desk.

[1] You could trade on your own personal account, but that is highly regulated also.

[EugeneG]

No. You don't necessarily work in a brokerage. You work as a market maker. You are obligated to constantly show a price at which you will buy and a price at which you will sell. Inherent to being a market maker is using the information the market tells you to take views (which influence the buy/sell prices you show to the market - which of course influences your profitability). Do not confuse this information with "insider trading." This is very, very different. Knowing information about the company fundamentals that is non-public is highly illegal. Knowing that a lot of people want to buy stock from you and using that to influence your trading is not.

[yummyfajitas]

I was responding to this: "One of the key things that Goldman has (as a hedge fund) is the ability to see what all their clients are doing...Hedge Funds, OTOH, are used to being spokes, rather than hubs, and so don't expect to know what everyone else is doing."

A market maker is merely a prop desk running a particulra strategy. They have no information on Goldman's clients. They behave exactly like any hedge fund.

Insider trading is a red herring, I don't know why you bring it up. Mdda claims Goldman is breaching their fiduciary duty to their clients.

[EugeneG]

"A market maker is merely a prop desk running a particulra strategy. They have no information on Goldman's clients. They behave exactly like any hedge fund."

The common understanding is that a market maker is not exactly a prop desk. The clients of a market maker are the counterparties who take the other side of the market maker's markets. (These counterparties are Goldman clients). Market makers are not hedge funds and don't fundamentally behave like hedge funds, though I suppose both during their line of work take views on markets, so there are some similarities.

My point was, market makers, by definition, know what (their) clients are doing and take market views based on this. The major value in being a market maker (which is a huge part of Goldman's capital markets business) is seeing client flow.

[mdda]

Actually, Goldman repeatedly claimed in their defense of their actions on the Fab CDO that they had no fiduciary responsibility to their clients.

Also as a market maker, it's difficult to ignore what's going on if all the smart money is selling, and all the dumb money is buying.

FWIW, the vast majority of market-making is taking place outside of the stock exchange : End-users are at a natural disadvantage, since they can't see all the flows.