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Market makers do have too big a piece of the pie.  A small few are making waaaaaay too much money.  I have old colleagues making $5meg/yr+ because their groups are taking $200 meg out of the middle with roughly 10 traders.  

Without market makers, you won't have a market.  The sellers simply refuse to set their own prices and defer to settlements or Platts or anyone but themselves.  Selling fixed price sets them up for real metrics measuring their performance and you can't have that or well paid wankers might lose their jobs.

The current system suits the producers just fine though they'd love higher prices without taking any personal risk.  They have no obligation to use exchanges or any derivative pricing mechanisms.  The buyers would just as happily take posted prices or negotiate other fixed price arrangements or EFP everything.

Your words make it clear you believe this systemic rigging is to the down side (otherwise why would crude producing players mind).  This doesn't hurt consumers.  If Morgan and Phibro take money off of Statoil, INOC, et al, no skin off my behind.  

Buy side hedgers aren't being hurt by settlement rigging.  There is nothing stopping them from trading during the middle of the day.  As for options, my gut says the bigger problem is the few number of players who will make a market for anything esoteric.  When I was doing a bit of that sort of thing, there was just Aron, Morgan and a couple of other banks that weren't too good at it.  It was easy to make a fat margin as there was no competition.   But again, no one is forced to hedge and truly hedging may well minimize price swings, but there is a cost.  the broker/dealer will be paid for taking the risk away.

by HiD on Fri Nov 10th, 2006 at 09:35:26 PM EST
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