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Blessed are the market makers, for they will inherit insider trading losses

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Feel sorry for Goldman, Citadel, and some lesser known market makers in the derivatives trading game. Take a market with record M&A activity, mix in some leaky investment banks, overeager investors, poor regulatory oversight and slow enforcement and you get a lovely record breaking stew of insider trading. We've covered the greatest hits so far this year - the Oyster Bar debacle, the Pakastani investor's TXU jump and the myriad of pumpage and dumpage in potential deals like Dow Jones. The one guest in this insider trading party that's often overlooked is the market maker.
Market makers account for 44% of the options trades in the US, which means they take advantage of record derivatives volume, but also the brunt of insiders buying call options on securities they know will spike in value when a transaction is announced. Citadel and Goldman can eat some of these losses, but boutique shops take the hit a littler harder. For instance, PEAK6, a market maker for over 2,000 companies, got hammered with several million dollars of losses in the Dow Jones mystery-spike when the firm was forced to sell off securities at below market value.
The SEC is investigating more cases of insider trading this year than the agency took on in the 1990s, and the year's only half over. The 22 cases also only scratch the surface when it comes to the extent of the insider trading going on, making SEC enforcement an unlikely if impossible deterrent to insiders looking to cash in.
Goldman, Interactive Undermined by Insider Trading on Options [Bloomberg]