Goldman fires back on HFT

July 27, 2009

Goldman Sachs is not known for being particularly forth coming with the press. The investment firm’s two favorite words for dealing with media inquiries are “no comment.”

But all of sudden Goldman is taking an aggressive stance when it comes to the subject of rapid-fire high frequency stock and commodities trading–an activity that is drawing increasing scrutiny from the press, regulators and even the folks on Capitol Hill.

A Goldman spokesman just emailed me a quick statement, trying to downplay the firm’s involvement in HFT. The spokesman notes that “even using the broadest definition, high frequency shares trading accounted for less than 1% of Goldman Sachs’ total revenue in the first half of 2009.”

The spokesman goes on to note that Goldman’s proprietary trading HFT desk does not receive so-called “flash quotes” from stock exchanges. A flash quote is a controversial practice in which an exchange allows some hyperactive HFT desks to get a sneak peak of other customers orders.

On Friday, New York Sen. Chuck Schumer called on the Securities and Exchange Commission to ban flash trades, saying it gave some Wall Street firms an unfair trading advantage.

And finally, Goldman says it believes all HFT should be “subject to appropriate regulatory oversight.”

That last piece of news is certainly a welcome development; as is Goldman’s decision to open up a bit on the murky subject of HFT.

Up until now, the firm largely has been silent on the subject of automated, computer-driven trading. But Goldman has been drawing a lot of press scrutiny on the subject, ever since the July 3rd arrest of a former employee on charges of trying to steal some of its top secret HFT trading code.

Let’s hope this new standard of openess at Goldman will extend beyond HFT and isn’t just a rapid-fire response to a letter writing campaign by a US senator.

5 comments

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I would be more impressed by far if Goldman Sachs
took a public stand against financial companies
making contributions to political campaigns.

David Bernier

Posted by David Bernier | Report as abusive

Say what?

Can’t wait for their thoughts on colocation.

Meanwhile, HuffyPo’s excellent article from Sunday on the issue ( http://preview.tinyurl.com/mmvvgb ) contributes my favorite typo to date on high-speed investing: “Genuine investors should get favored fax treatment.”

‘ELP! ‘ELP!

“Direct Edge in crosshairs of ‘flash’ orders debate”, http://preview.tinyurl.com/ku6c2v , by Jonathan Spicer, Reuters, July 27, 2009. 2:13PM EDT

“… Direct Edge is owned by Goldman Sachs (GS.N), JPMorgan Chase & Co (JPM.N), hedge fund Citadel, Knight Capital Group (NITE.O), and the International Securities Exchange, a unit of Deutsche Boerse’s (DB1Gn.DE) Eurex exchange.”

Well, maybe they have no *DIRECT* Direct exposure …

[...] this morning.[1] A Goldman spokesman just emailed me a quick statement, trying to downplay the firm’s [...]

And if EFT plays no significant part of Goldman’s outstanding performance maybe they are just loaded with wizards. Any way its sliced connection and privelege have got to figure in. Who has the set it takes to check it out? Too good to be true? Too good to be true.

Posted by DanO | Report as abusive

Goldman Sachs was the biggest packager and seller of collateralized debt obligations (CDOs), packaging thousands of mortgages together, 75% subprime, yet passing them off as AAA paper. When the market deteriorated, Goldman made profit by selling them short.
And many retirees, mutual funds, and city governments who bought these bonds with assurances of Goldman sales people were badly hurt.

Goldman Sachs also was a large purchaser of credit default swaps (CDSs), many from AIG. Representatives from Goldman placed pressure on Hank Paulson for government bailout funds for AIG. And where did billions of those bailout funds go? To pay off Goldman!
And we the taxpayers are picking up the tab.

Goldman Sachs developed computer algorithms for high frequency trading. As such, they insert themselves in rising or falling stocks, buying and selling with lightening speed and making huge profits.
As a result, the individual investor buys these stocks at higher prices and sells them at lower prices.

Goldman Sachs is profiting from the financial crisis recovery by taking the same huge risks with a bonus-driven culture.
And if they create another market bubble, will they require another government rescue?

So, please tell me how Goldman Sachs’ activities and business model benefit our society as a whole by creating financial products that contribute to the growth of American financial industry? What do they do that is valuable to other people? Or does Goldman merely create financial gimmicks to make money for Goldman, leaving the crumbs for the rest of us, and subjecting individual investors to a stock market with a casino mentality?

Posted by Joanne | Report as abusive