By Jeremy Grant
Published: January 22 2010 10:58 | Last updated: January 22 2010 10:58
Who are the winners from the Obama bank prop trading ban?

While it is only a proposal at this stage, it isn’t hard to figure out who might benefit from the exit of banks from the prop trading game, at least in the short term, since those prop desks may just reconstitute themselves as smaller independent prop shops.

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But the big market-makers who risk their own capital seem an obvious place to start: Knight, the US broker – specifically its Knight Link unit – or Getco, the Chicago-based high-frequency trading firm, Citadel – specifically its Citadel Execution Services unit – and perhaps the Dutch marker-makers like Optiver.

That is because unlike pure brokers or indeed “dark pools” operated as a matching service, they engage with institutional or retail orders as buyers and sellers, offering them the chance to match orders and risking their own capital doing so.

With dark pools like the one operated by Liquidnet, aimed at so-called “buyside” participants or Instinet’s BlockMatch, there is no capital commitment. Buyers and sellers just meet in the pool and trades either get matched or don’t.

Knight’s shares soared on Thursday, but that seemed more to do with market-beating earnings.

For the potential losers, see my FT Alphaville colleague Izabella Kaminska’s take here.

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