For two decades CME housed its own proprietary trading desk, complete with a dozen traders, exchange collateral, and a multi-million dollar P&L. This is the story of GFX Corp:pic.twitter.com/xxVKinxwjf
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Let's put ourselves in CME's shoes for a moment. Liquidity is the core value of an exchange. The exchange partners with market makers to help spur some of this liquidity. Why not try and vertically integrate? Create the liquidity yourself?
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The problem comes when considering conflicts of interest. How does it look for CME - the creator and front-line referee of its markets - to make money trading against its own customers? It can be construed as the ref rooting for a team on the sports field.pic.twitter.com/zA82PWPgGG
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In 2018, GFX was decommissioned. Why? It's unclear. The saga of an internal CME trading desk illustrates how exchanges can get creative to try and build better markets, but there's a balance bw establishing trust and growing liquidity that's important to maintain.
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