aroused

Goldman Sachs: The Walmart of Wall Street

Tools

Just about all trading desks are bent on executing more volume electronically. They really have no choice in this day and age.

Goldman Sachs certainly sees advantages in this. CEO Lloyd Blankfein recently said that, "We are much more focused today on operations and technology and being a low-cost provider than we would have articulated about ourselves 10 or 15 years ago." The "low-cost" comment prompted the WSJ to call it the "Walmart of Wall Street."

Profits per trade in equities have been as low they have ever been, requiring banks to make money on sheer volume as much as anything. The e-trading push has been most pronounced in equities, but we're seeing more electronic trading of bonds, with currency, ETFs and derivatives not far behind. Greenwich Associates recently found that in North America, the share of futures trading volume executed electronically increased to 48 percent in 2011-2012 from 38 percent the prior year.

North American hedge funds and insurance companies are now executing approximately two-thirds of their futures trading volume on electronic platforms. In addition, approximately half of institutional ETF trading volume in the U.S. was executed electronically in 2011-2012, up from 36 percent the prior year.

Two trends are fueling the move: The push toward central clearing in the OTC derivatives market and the economic pressure "on both buy-side investors and sell-side brokers to reduce costs and cost-to-serve. In the current environment, electronic execution is a way to lower costs of execution and client coverage," notes the report. 

One challenge in making e-trading dominant will be to develop more intelligent software that can essentially work an order the way humans can do via high-touch, rolodex-based personal processes.

For more:
- here's the article

Filed Under