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And client trading can cause losses, too.
Michael DuVally, a spokesman for Goldman Sachs, told me, "Our sales teams naturally make an effort to understand how client trading strategies perform over time.
But taking the fourth quarter separately, profits at Goldman Sachs were down 7% on a year earlier after revenue fell in each of its four divisions – investment banking, client trading, lending and fund management.
By contrast, in 2009, "our business was resilient in the fourth quarter despite lower client trading activity in November and December," the bank's chief executive, Brady W. Dougan, said in the earnings statement.
The Charles Schwab Corporation, the discount broker, yesterday named John Phillip Coghlan, formerly head of its institutional business, to run its retail division, which is dealing with a decline in client trading amid falling stock prices.
James McCormick, a currency strategist at J. P. Morgan Securities, said that on the basis of client trading flows, "no one was short the euro this time around, so no one got hurt".
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The rules envisage limiting that to the expected near-term demand for client trades.
Soon afterward, major exchanges where MF Global does business said that they had suspended the firm from guaranteeing client trades.
Schwab said that total client assets were $1.432 trillion at the end of February, up 37 percent from a year ago, but that client trades were down 14 percent.
This was supposed to be a high-volume, low-margin business, making money on a bid-offer spread on client trades, with a little arbitrage on the side.
Bloomberg News reported that employees had been manipulating the rate by pushing through client trades before and during 60-second windows when the benchmarks are set.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com