The Markets ConversatION Podcast

Quick Takes: Could “enshittification” happen in derivatives markets?

March 12, 2024 | Duration: 10 minutes

Speakers: Amir Khwaja and Chris Barnes


In this episode, Chris Barnes references the FT article that introduced us to “enshittification,” which has no doubt made the rounds of trading floors ever since. Chris will also discuss the following points:

  • Is “enshittification” of social media akin to worsening liquidity conditions in financial markets as a result of increased rent-seeking behavior of centralized platforms?
  • Why we see ever increasing volumes traded in Rates markets, and yet constant concerns from market participants over liquidity conditions.
  • How post-trade transparency shines a light on market functioning, but does not define liquidity metrics or the cost of liquidity provision.
  • Does this all make Citadel the Taylor Swift of modern markets?


Ali Curi: Hi everyone, and welcome to ION Markets Quick Takes. I’m Ali Curi and every week, along with my guests, Amir Khwaja and Chris Barnes, we take a quick dive into the headlines on the Clarus blog.

Let’s get started. Hi Amir. Hi Chris.

Amir Khwaja: Hi Ali.

Chris Barnes: Hey Ali, how are you doing today?

Ali Curi: I’m doing great. Welcome back to Quick Takes.
Hey Chris, let’s start with you. What’s your Quick Take for this week? Which headline from the Clarus FT blog would you like to discuss?

Chris Barnes: All right, Ali, I’m going to be a very brave man today and I’m going to cover a blog I never thought would make the podcast. The blog is called “Could ‘Enshittification’ Happen in Derivatives Markets?”

And I feel like, you know, to start off I should just flood this podcast with a load of disclaimers. When you write the blog, it’s very, very easy. I can put up a big image, a big AI generated image of Taylor Swift, and make it very clear that a lot of these points are somewhat tongue in cheek and when you’re doing a podcast and you kind of start on this spiel, it becomes a bit of a monologue and you end up sounding so serious on the podcast.

And we have to remember at times that Clarus is very much founded on the basis of the blog. It’s written in a very chatty way, and that does give us a particular platform at times to throw out some fairly ludicrous ideas. And one of these things I’ve picked up on at the beginning of this year is a concept called “enshittification.”

And okay, it’s kind of a bit of a clickbaity word. When someone says kind of, enshittification to you, it just encapsulates a lot of the feelings that people have towards, I think, these big mega tech firms, platforms, you know, things like Facebook that started out so good. I’m a alumni of Cambridge University, Facebook first launched by select universities and their alumni were contacted and invited to join.

And it felt like this like super cool club almost, you know, where you’re really rewarded for being an early adopter, a fantastic way to stay in touch with people. Fast forward to today, and that’s expressly what Facebook isn’t, right? Everybody now considers Facebook as like this echo chamber where all you read about is everything that’s bad.

People only ever share news articles, which reinforce their own views of the world. There’s a lot of press written about the negative impacts of social media and kind of trying to flex and show off. And so Facebook started off as this great thing, and now all that people moan about is how bad it is.

I thought about that and I’m typical, like middle aged man. I don’t want to come across as like, you know, old and grumpy and in the old times were better. And I thought, well, if you think a little bit about derivatives regulation, which I admit is quite a leap from Facebook and enshittification to derivatives regulations.

But if you think back to some of the goals of Dodd-Frank and post GFC changes, the kind of the vision “the nirvana” was that we were going to transform our old clunky, paper based derivatives markets into this like shining example of tech and IT and low touch and STP, and there’d be new market participants.

There’d be new sources of prices in swaps, the old days of brokers speaking via voice to dealers and me saying mine, yours, et cetera. They would be things of the past and everything would be automated. And the point of getting to that ultimate automation was to make the markets better. Not only from a compliance perspective so that everything could be monitored, but it was meant to make markets better from a user’s perspective as well.

You would be able to click on a swap and trade it, and that would be a lot more efficient. And it would ultimately provide you as an end user with more prices because it would be cheaper for market makers to provide their service. They would just need a screen. They would just have to blast their prices out and anybody could trade on them.

And when I sit here in 2024 and I look at the market infrastructure, which Amir and I do a lot, it makes me think that A) we’ve lost sight of what the end goal of these regulations really were, it was meant to increase the liquidity in the swaps market. And yet all we ever hear are market participants moaning about a lack of liquidity in swap markets.

And when I talk about and “eshittification” of this, Amir and I write a lot about ever increasing volumes. That might be increased volumes of trades. It might be increased percentage of markets, which are cleared. It might be more market participants. There’s more, more, more, more of stuff happening in derivatives markets, but our end users actually getting a better experience.

I said at the start, I didn’t want this to be a big grumpy monologue, and I’ve just spoken for six minutes. I’m going to pause there. I think “enshittification” is naturally a conversation.
Amir, any points you’d like to raise?

Amir Khwaja: Yeah, I must admit, so I enjoyed the article and it and I went back this morning to read the FT one by Corey Doctorow and it’s quite a lengthy piece.

I guess the big difference between those Facebook, Google type platforms are the platforms are now space in trading, have more competition, right? And much more regulation. So those two are given compared to the recognition of social media. But I wanted to talk a bit about self- help.

You’re first to self help. The fact that ad blockers on the browser. And with apps, you can’t block ads anymore on Facebook, right? So really, so in our space, it’s also self help. So market participants on these venues could trade, if they’re allowed to, amongst themselves, right? Off the platform, yeah?

Chris Barnes: Agreed. But are we only talking about the point of trade here? Because if you think about the full extent of market infrastructure, you’ve got post trade reporting. They’re kind of natural monopolistic plays, really. Clearing, for example you could have suddenly 90 percent of your portfolio is cleared. But you’ve still got to maintain that 10%, which is uncleared.

And so nothing has become more efficient. You’re just using more resources to process less trades actually. Is that an example of enshittification? Are the regulators actually by trying to force as much as almost everything they can to clearing, actually resulting in kind of embedding complexity because you can never clear everything.

There’s always going to be an uncleared market. And so there’s lots of kind of, I think one of the themes we’re trying to get across is that there are unintended consequences. We set out with a goal to make the markets better. That can put a machine of complexity at times. And if you started from a blank piece of paper, no way would you end up where we are today, basically.

Amir Khwaja: I think it’s a good point. But clearly, I think transparency in terms of pools of risk, systemic risks have been big improvements, I think, since the last 10 years. And I think that, but the issue I think always is with competition, regulation, new tech, it takes far longer than you expect, right?

Just to see the productivity gains, right? And even now we’re still searching for the productivity gains of computers, right? In the data, in the labor force, right? But I think now we’re about to enter the AI productivity search for gain for AI, so I think it’s all interesting. But I think the other one I’m talking about was workers.

It talks quite a lot about what workers can do themselves, right? If they’re buying to the mission of the platform. And again, I think we always feel that if you’re working in our industry, and you believe in this mission to more liquidity, better technology, I think us as workers can also push and say we haven’t quite got there, more needs to be done.

Chris Barnes: Yep, a hundred percent agree with that. I think it’s really, really important, you know, the good people at banks who maybe feel like they can’t do the more interesting aspects of their jobs in terms of kind of pure market making or prop trading that has led to an explosion of that talent moving to the buy side, increasingly looking at alternative ways to provide liquidity into the, into dealer market almost, and so people can always vote with their feet.

And I think that’s something that the finance industry is a lot more sensitive to than probably any other industry out there. I talk about it as rent seeking behaviors. We all have a very inherent sense of our value of time and our sense of value of talent. And so we will actively make changes if we feel like rent seeking behavior has gone too far.

Ali, that was everything I had. I could talk for hours on enshittification. I promise I won’t, but interested to hear any of our readers and listeners feedback.

Ali Curi: Well, thank you, Chris. And please share with us again that cringe title of your blog post.

Chris Barnes: I know it’s shocking, but it’s called, “Could enshittification happen in derivatives markets?”
And I do draw a parallel between Citadel and Taylor Swift.

Ali Curi: Great, that works. Chris Barnes, Amir Khwaja, thank you both for sharing your Quick Takes. Let’s do it again next week.

Amir Khwaja: Thanks, Ali.

Chris Barnes: Thanks, Ali. Till next week.

Ali Curi: And that’s our episode for today. You can read more about these topics on the Clarus blog and you can follow ION Markets on X and on LinkedIn.

Thank you for joining us.