In August of 2011, right amidst the chaos of the S&P downgrade of US Treasuries, I joined a proprietary trading firm behemoth by name of Optiver US, LLC. I knew compliance was a concern for trading firms, but only in hindsight did I realize to what extent.
Few people know much about trading outside of the big banks (Goldman, JP, MS, etc.), but Optiver was particularly well-known during that time. The first page of results from a Google search prominently displayed a notorious price-fixing scheme of crude oil futures by (ex-)senior Optiver traders. The CFTC had launched a multi-year investigation that was coming to a damning close as I joined. Needless to say, compliance was very strict and probably the reason why an entire session of our final round of interviews was regarding "ethics" (hint: if something sounds illegal, it probably is). The remaining legal procedures of the case would continue for the following year or so, finally concluding in 2012 with a $14M settlement and a somber statement from our MD at an all-hands meeting.
The media sensationalized the case as expected,
"Its superfast, supersecret oil trading software was called the Hammer." NY Times
referencing sophisticated high-frequency algorithms and generally painting a sinister picture. I learned early on, however, that "the Hammer" was simply an Excel spreadsheet with macros linked to the trade order system, sending orders based on relatively manual calculations. Things were a lot simpler back then.
Optiver wound down its crude oil trading desk soon after the case settled, which makes sense due to the increased compliance risk and heavy restrictions placed upon it. Two years later, with the restrictions finally lifted and just as I was leaving the firm, Optiver re-entered the crude oil markets. It’s hard to put a number to the opportunity cost of those two years not trading crude oil, but it wasn't trivial. Compliance will always be a top concern for trading firms, and I was lucky enough to witness (and not experience) firsthand the consequences of breaking the rules.