There is a rough conceptual distinction between a “hedge fund” and a “proprietary trading firm.” The way it goes, approximately, is:

• A hedge fund manages money for outside investors and takes a cut of the profits for itself. A prop firm manages only its own partners’ money.
• A hedge fund is on the buy side; it makes investing decisions. It buys stocks that it thinks will go up. A prop firm is often more of a market maker, a liquidity provider: It tries to buy from people who want to sell, sell to people who want to buy, and clip a little bit of profit on every trade. 
• A hedge fund has a longer holding period: It buys stocks that it thinks will go up and holds them for hours, days, months or years, until they go up. A prop firm buys and sells rapidly and tries not to hold positions for too long.

These distinctions are not always and everywhere true, but they are standard stereotypes, and they all sort of fit together. A hedge fund has outside capital, so it can have a longer holding period; a prop firm has only its partners’ capital, and they’ll sleep better if they go home flat each night. Because a hedge fund can hold positions longer, it will care more about fundamental value; because a prop firm has a short time horizon, it won’t care about fundamental value but only about how the market will move in the next few seconds.

But this distinction has blurred over time. The top prop trading firms have gotten bigger, for one thing, and are more comfortable taking bigger and longer-term risks. Meanwhile the biggest hedge funds have become in some sense more technical, more interested in extracting alpha by providing some market-making-like service than in buying stocks that they think will go up. I wrote a few months ago:

I think sometimes that there has been a convergence between a class of firms that are usually called “multistrategy hedge funds” and the ones that are called “proprietary trading firms.” …

The exchange floors closed, and the market makers got their own nice offices, got bigger, and became more willing to take on longer-term, less liquid and more complicated risks. The hedge funds also got bigger, hired more managers, and became more obsessive about controlling risk, leading them to trade more quickly and earn more profits from trades that look a lot like liquidity provision. And so it is natural for trading teams to move between the Jane Streets of the world and the Millenniums of the world, because those firms do broadly similar things and serve broadly similar functions.

The funding models remain different, for the most part — prop firms use their partners’ money, while hedge funds use outside money — but even those have converged. Some successful hedge funds have closed to outside money and become “family offices,” which is kind of another way to say “prop trading firm.” And we have talked about how the model of the big multistrategy hedge funds is not really “we will invest money for clients and take a cut of the profits”: As I once put it, “the limited partners are not partners in Balyasny’s investing; they are capital providers to Balyasny’s business.”

The Financial Times has a story about Tower Research, a prop firm, also becoming a hedge fund:

High-frequency trading firm Tower Research Capital is planning to launch a fund for external investors as it looks to shift beyond the ultrafast strategies that have made it a big player in global stock markets.

Tower’s fund will hold investment positions for hours or days at a time rather than the slivers of a second common in the industry, said people familiar with the matter. It would mark one of the first examples of a large high-speed proprietary trading shop opening a product for outside investors. …

“There’s just a finite [limit] to the amount of money that you can make with the really high-frequency strategies,” said a person close to Tower.

They added: “It’s a high fixed-cost business and I think all firms are looking at ways in which they can leverage that cost base to apply the quants and the models and the systems to more [parts of the market]. It makes logical sense for a firm like Tower that was solely focused on the short-term end to incrementally move down [the] spectrum.”

If you invest a lot of money in figuring out which stocks will go up in the next second, it might have the side effect of telling you which stocks will go up in the next hour. You might as well do something with that information.

People used to say that corporate bonds trade “by appointment.” The metaphor is meant to evoke, like, an antiques store that is open only by appointment. If you want to buy stock, you just go to the stock exchange whenever and say “I’d like 100 shares of Stock X” and you get filled immediately. But if you want to buy a corporate bond, you need to call the one bank that sells it and say “I’d like to buy $100 of Bond Y” and they’ll say “oh sorry our Bond Y trader is out to lunch right now but I’ll have her call you when she gets back” and then she’ll forget and you’ll call again the next day and she’ll be busy but she’ll promise to get back to you, and two days later you will get her on the phone and she’ll say “I don’t actually have any Bond Y right now but I’m working on a lead, give me a few days,” and eventually, a few weeks later, she will call you and say “hey I got sidetracked for a bit but I finally found some Bond Z for you, do you still want it” and you will say “no I said Bond Y?” Not efficient!

The point was that, historically, you couldn’t just push a button to buy whatever corporate bond you wanted: There are lots of different bonds, they are not fungible with each other, many are held by long-term investors who don’t trade very much, and until fairly recently they traded over the phone rather than on electronic platforms.

One thing that you might think, when you hear “by appointment,” is: What if we had a standing appointment? Sure, there are lots of bonds and they don’t trade very much; if you kept the bond shop open 24 hours a day, you’d be pretty bored most of the time. But what if we just agreed that the bond shop would open for 15 minutes at, say, 4 p.m. every day? We wouldn’t need to play phone tag to try to make arrangements for me to open up the bond shop so you could buy some bonds. We’d all just know that the bond shop would be open for 15 minutes a day at 4 p.m., and if you wanted bonds you’d go then.

Bloomberg’s Lu Wang and Justina Lee report:

Credit trading is increasingly migrating to the end of the Wall Street day, echoing a long-term trend in equities that has fueled a debate over how index funds are reshaping the market.

About 9% of daily trading volume in US investment-grade corporate debt occurred within one minute of the close of key indexes in the first nine months of last year, according to academic researchers studying reported trade data. Less than a decade ago, that figure was below 0.6%.

The shift is a result of the rapid proliferation of passive funds in fixed-income, the researchers argue in a paper titled The Growing Index Effect in the Corporate Bond Market. To minimize any deviation from their benchmarks, index-following vehicles tend to adjust holdings as close as possible to the time the prices for their respective gauges are set. While the bond market doesn’t have one specific daily close like stocks, many indexes price at what is considered the end of the business day — or 4 p.m., aligned with equities.

The implications of the clustering are not clear cut. On one hand, the study shows that the concentrated trading has lowered transaction costs by making it easier to match buyers and sellers, especially for dealers subject to capital requirements who are reluctant to put bonds on their balance sheets. On the other, it found that liquidity disappeared when it was needed most, since index funds are prone to strong one-sided flows at times of stress.

I guess, though the liquidity worry I find least compelling is “if everyone wants to sell at the same time then the price will go down.” “While liquidity during other periods of the trading day has declined, liquidity at index closing time has improved, resulting in a net positive effect,” says the paper, and of course that would be true. If (1) people don’t trade bonds that much and (2) they trade at random times, then any time you go to the bond market to trade bonds, chances are that there’ll be no one to trade with you and your trade won’t get done. But if people don’t trade bonds that much, but they all trade at the same time, then they’ll be more likely to get their trades done.

You can buy shares of an exchange-traded fund that owns, say, the S&P 500 index. The ETF will pool its investors’ money to buy shares of the stocks in the index, and you will own your little slice of the pool. Some of those stocks pay dividends, and the ETF will pay you your share of those dividends. That’s nice for you.

Or you can buy shares of an exchange-traded fund that owns cash. I mean, not exactly. I don’t think there’s an exchange-traded fund that owns paper dollar bills; that would be weird. You can, however, buy shares of an ETF that holds “cash,” in the sense that financial people normally use that word. “Cash” in this sense means short-term liquid safe investments; for US dollars, that typically means US Treasury bills and reverse repo agreements. A “money market ETF” just holds cash, in this sense. But (unlike paper dollar bills) those short-term liquid safe investments tend to pay interest, and the ETF will pay you your share of that interest. [1]

Or you can buy shares of an exchange-traded fund that owns Bitcoin. It will pool money to buy Bitcoins, and you’ll own a slice. Bitcoin does not pay dividends, though, so there will be no cash flow from the fund.

This is arguably slightly weird. Bitcoin is in some ways like a growth stock: You buy it because you hope it will go up, not because you are expecting cash flows. But Bitcoin is in other ways kind of like cash. (It is “a peer-to-peer electronic cash system.”) If you have a big pile of Bitcoin, one thing you can do is just hold it. Another thing you could do, though, is lend it to other people who want to borrow Bitcoin and would be willing to pay you interest. Why not? [2] That’s a thing you can do with money. 

You could imagine setting up a “Bitcoin money market ETF,” which, instead of buying a pot of Bitcoin and sitting on it, would buy a pot of Bitcoin, lend it to other people, charge interest, and pay out the interest to its investors. Owning Bitcoin and getting interest does seem better than owning Bitcoin and not getting interest.

I do not predict that this product will launch next week, though. For one thing, there is not exactly an equivalent of “US Treasury bills” denominated in Bitcoin; the actual history of crypto lending platforms involves a certain amount of careless lending and catastrophic failures. Owning Bitcoin and not getting interest is probably better than owning Bitcoin, lending it out, and not getting it back.

For another thing, there is an oddity of US Securities and Exchange Commission regulation. Bitcoin, as far as the SEC is concerned, is not a security under US securities laws, so it is not subject to the securities regulatory regime. But — at least until recently — the SEC took the position that lending Bitcoins to earn interest was a security, and so was subject to stricter regulation. A security includes “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” and arguably investing in a Bitcoin lending program counts. (Intuitively: A dollar bill is not a security, but a bond is; same for crypto.) In the Trump administration it is not clear that that is the SEC’s position, but it’s not clear that it isn’t either.

My rough understanding of the rules is that you can easily have an ETF that invests in securities. (That’s most ETFs! The S&P ones, for instance.) And you can have an ETF that invests in not securities. (For instance, a Bitcoin ETF.) The former fall under US “investment company” rules, and the latter don’t, but either way can work. But a Bitcoin money market fund might be neither fish nor fowl and so hard to set up. Are you an investment company, or are you not? Are you investing in securities, or in non-securities, or in some mysterious third thing?

One more possibility. You can buy shares of an ETF that owns Ethereum or Solana. Ethereum and Solana are cryptocurrencies like Bitcoin, and your ETF will, like a Bitcoin ETF, just hold on to those currencies and not earn any interest.

But Ethereum and Solana are a little different from Bitcoin, in that they do pay dividends. Sort of. The basic story is:

1. A cryptocurrency is a token attached to a decentralized system for keeping a ledger of who owns the tokens.
2. A lot of big cryptocurrencies — including Ethereum and Solana, though not Bitcoin — keep that ledger through a process called “staking.” To oversimplify drastically, what this means is that anyone who owns the tokens can participate in a system of voting on what transactions are valid: You put your tokens in a box, and you get one vote for each token you put in the box. [3]
3. The cryptocurrencies pay “staking rewards” to the people who participate in the voting system.
4. To a first approximation, those staking rewards look like a percentage return on the holdings that you stake; you could get, say, a 2% annual return on the crypto that you stake.

And that’s kind of a dividend? Ethereum is a big technological and economic project, and as a tokenholder you can own a stake in that project, and as a staking tokenholder you can earn a percentage return in the form of more tokens.

You might not stake your Ethereum for various reasons. Perhaps you plan to trade your Ethereum and don’t want to lock it up, or perhaps you just find it administratively confusing and don’t want to bother. But an ETF that owns a giant pot of Ethereum might be more inclined to stake its Ethereum: Owning Ethereum and earning a dividend is better than not earning a dividend, if you’re not doing anything else with your Ethereum anyway.

But this runs into the same neither-fish-nor-fowl problems with the SEC. Bloomberg’s Isabelle Lee, Nicola White, and Loukia Gyftopoulou reported last week:

A new line of yield-chasing crypto funds is forcing the Securities and Exchange Commission to confront unresolved gaps in its regulatory framework, just as the Trump administration eases oversight of digital assets.

The immediate dispute centers on two proposed funds from ETF firms REX Financial and Osprey Funds that would allow investors to earn rewards by deploying Ether and Solana tokens to help validate blockchain transactions, a process known as staking. The firms said they had cleared an initial SEC registration hurdle last week, but agency staff took the unusual step of objecting that very same evening. Staff warned the products may not meet standards to qualify as investment companies under federal law, raising broader questions about regulation of a hot corner of the crypto-investment world. …

“When ETFs generate income from staking, they may start to resemble traditional investment companies under the Investment Company Act — especially if investors are relying on the managerial efforts of others to earn those returns,” said Adam Gana, an attorney at law firm Gana Weinstein LLP. “However, these types of ETFs are testing the boundaries of what counts as an investment company, and the SEC is sending mixed signals.”

Before the Trump administration, the SEC definitely took the position that crypto staking programs were securities. Now, maybe not; Lee, White and Gyftopoulou note that “as recently as May 29, the staff said federal securities laws generally don’t apply to staking activities.” If these funds are investing in securities, they qualify as investment companies; if they are investing in non-securities, they don’t; if no one knows, then no one knows. 

I confess that I do not entirely understand the problem, which seems technical and administrative rather than fundamental. Again: You can have an ETF filled with securities, or one filled with non-securities, so surely something is possible here. I wrote last year:

It seems to me that Ether ETFs have a crucial advantage here. They are securities. A spot Ether ETF just is a security. It is registered with the SEC. It is issued by a company … whose whole business is issuing SEC-registered securities. …

Spot Ether ETFs have already solved the harder US regulator issue, which is: They are packaging Ether in an SEC-registered security. Meanwhile every other way to get staking rewards from Ether — staking with a crypto exchange or a decentralized platform, etc. — has not solved that issue. If you hold Ether yourself and deposit them with a crypto exchange to earn staking rewards, the SEC might eventually go after the exchange for issuing unregistered securities. If the SEC has its way, ultimately, nobody will be able to offer Ethereum staking rewards outside of a security. But Ethers in an ETF are inside a security!

That was last year, and now the SEC doesn’t care about preventing people from offering Ethereum staking rewards outside a security. But surely it should allow people to offer those rewards inside a security.

Man, it worked:

General Atlantic has followed rival private equity firm Apollo Global Management in abandoning early recruitment for its junior roles, telling applicants that it will not conduct interviews this year for positions starting in 2027.

So-called on-cycle recruiting — where private equity firms recruit recent graduates about to take up roles with investment banks for positions that start two years later — had pitted some of Wall Street’s biggest players against each other. JPMorgan Chase chief executive Jamie Dimon has been a vocal critic of the practice, arguing that it creates conflicts of interest.

On Thursday, General Atlantic emailed potential recruits to notify them that it was delaying its recruitment until next year.

“General Atlantic does not plan to conduct formal interviews or extend offers this year for the Associate Class of 2027,” the company wrote on Thursday in a message seen by the Financial Times.

“This decision reflects our commitment to making long-term, thoughtful choices about the talent we bring into the firm and the culture we cultivate, while also allowing you the space to prioritise your development in this stage of your career.”

We talked about Apollo’s move yesterday, and we talked on Monday about JPMorgan’s threat to fire analysts who accepted private equity offers too early in their time at the bank. My take on private equity recruiting is that (1) nobody likes the fact that it happens so early but (2) trying to move it later would result in a fragile equilibrium: If everyone waits to recruit until junior employees have spent at least a year at a bank, and then one firm interviews early, that firm will have an advantage in locking up the best associates. Right now, Jamie Dimon has given everyone permission to say “this is dumb, let’s wait a year,” so they are all saying it. (Because they all genuinely think it.) But if KKR announced tomorrow “actually we’re gonna keep doing this two years in advance and pick off the people that Apollo wants, nyah nyah nyah nyah nyah,” would Apollo and General Atlantic really wait? 

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