You can't hit and take your own bids and offers........come on, you guys should be smarter than that.
That is not what he's asking. You can't hit your own bids or offers, sure, but only if you do it yourself on your own computer. You won't be able to do that because your orders would cancel each other out. But, he clearly asked that since GS is a big company and they have many branches with trading desks all over the place, is it possible that one trader/computer in one branch of GS would trade against a trader/comp in another branch of GS (considering that all its branches don't know the details of what the other branch is doing to the second)? Actually, I'm clueless myself so I'd also like to see an answer to that.
If we're talking about GS then i'm sure that they do something along those lines that is illegal/unethical or at least borderline. They do whatever they want to do.
I totally forgot. There's actually a name for such practice. I needed to brush up on my Seires 7 skills ...I think it's called "matched trades". It's illegal.
Since I used to work on risk management desk... I actually wrote the algorithms that manage the OTC positions for an swiss investment bank. Answer is that they have computers to manage those positions. It is not that difficult to manage those positions and exchanges want you to do that. Because otherwise here is what you could do. 1) Market maker buys and has a long position. 2) Client using bank wants to buy long position. 3) Market maker hands off position to client pocketing transaction and profit or loss. This is not allowed since it cuts the exchanges out of the loop. Hence exchanges want you to ensure that you manage a good ship. Otherwise the exchange will exclude the entity doing these types of trades.