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Goldman Sachs Clarifies Its High Frequency Trading Practices
From: XXX and YYY
Sent: Tuesday, August 04, 2009 10:32 AM
Subject: High Frequency Trading - A Note from Goldman Sachs
In response to recent media stories on High Frequency Trading, we wanted to clarify our position to clients.
The attached letter outlines key facts about High Frequency Trading and highlights how Goldman Sachs conducts business to ensure the highest levels of integrity.
Please review the letter and contact your sales representative to discuss any specific questions or concerns you may have.
Regards,
XXX
YYY
A few questions:
1. Regarding revenue percentages - We are happy to read Goldman's broad generalizations: yet, if on 98% of SLP trades, which amount to anywhere between 600 million and 1 billion weekly, Goldman collect the generous $0.0015 rebate, it is a little troubling to see how this gift from the NYSE to Goldman could be so marginal. Also, could Goldman account for Implementation Shortfall costs associated of its SLP monopolization? We would be surprised if "slippage" profits did not fall under the HFT revenue umbrella. Maybe in their next 10-Q Goldman can provide some much needed detail to further elaborate this issue.
2. Regarding Flash - Perhaps Mr. Tusar can clarify some of the numerous questions we have had regarding use of Flash on SIGMA X. Furthermore, it is our understanding that Goldman does in fact allow external liquidity providers on SIGMA X, which are known as XLPs. Can Goldman please clarify who these are? By what definition would XLPs not be part of "client order flow." And, additionally, we would be excited to find out specifics on how GS' Dark Pool Flash knowledge is kept isolated from Goldman SLP trading flow.
3. Regarding Physical separation - It is refreshing that Goldman believes in the concept of Chinese walls. Since we are on the topic, would it be possible for Goldman to provide a snapshot of its trading floor and to distinguish where the flow traders and major fixed income and equity account salespeople sit in relation to prop traders and their analysts? We believe Goldman's credibility of a "force for good" would benefit significantly if readers knew that Goldman's prop traders were not constantly within earshot of hearing how many million shares of company X Fidelity may be buying, or how many million notional in CDS of company Y Och-Ziff may be a size buyer of.
Zero Hedge appreciates Goldman's attention to this matter.
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Robots are gunning the banks using the "Channelingstocks.com" technique.
They will keep hypertrading along the short term trendline until the line fails.
Hey Robo, how about Diedrich Coffee?? Up 4% today
thanks robo....i got bkx at a 100% fib level around 43.7.....if we get in the 43's, might grab faz and sit on it for a bit.
Apparently Assistant U.S. Attorney Joseph Facciponti didn't get the memo.
What is the subject about?
European pattern
http://finance.yahoo.com/q/bc?s=%5EFCHI&t=1d&l=on&z=m&q=l&c=
http://finance.yahoo.com/q/bc?s=%5EGDAXI&t=1d
Asian pattern
http://finance.yahoo.com/q/bc?s=000001.SS&t=1d&l=on&z=m&q=l&c=
http://finance.yahoo.com/q/bc?s=000001.SS&t=1d&l=on&z=m&q=l&c=
One should rejoyce the more money banks make,the less they ask to the tax payers after bonus payment.
Of course negative cashflow is only of concern to the shareholders.
Tyler,
Offsetting the rebate ($0.0015 per share) is:
SEC Sales Tax: $25.70 for $1M in securities sold. If we use your previous back of envelope $20 average price of security traded, this comes to $0.000257 per share assuming each position is bought and sold the same number of times.
NASD Trading Activity Fee: $0.000075/share sold. Again assuming a 50/50 split of buys and sells, this is $0.0000375 per share
NSCC Fee: .00003 per share
ACT Fee: .029 per fill
So, let's say that the average trade size is 500 shares (I have no idea about this figure for ELP... and it is as suspect as your prior guess at $20), then:
500 X .0015 = $0.75 rebate
But then the fees are $0.19
So, the net is more like: $0.56 on 500 shares, or ($0.0011 per share). Once you factore in the 2% of shares that they trade which remove liquidity, $0.001 seems like a better estimate.
To put this figure in perspective, for each 1B shares traded, the net from rebates is just $1M.
What's your estimate on the number of GS ELP shares per annum?
GE to Pay $50 Mln Civil Penalty to Settle SEC Fraud Complaint
http://www.bloomberg.com/apps/news?pid=20601110&sid=a2x1hnrEXhR4
Another fine getting paid back to the goverment with taxpayer money. Is that a feed back loop with a lot of leakage or what.
What a fucking joke.
They should create a "High Frequecy Trading Facts" website like the NAR did with their "Housing Market Facts" website.
In all of this, DirectEdge is introducing *ANOTHER FLASH ORDER TYPE*. They're calling it "flare" -> http://www.wallstreetletter.com/SubContent.aspx?ArticleID=2266476, and copying the style that NASDAQ and BATS use, where they flash orders on the feed that's consumed by the most participants (instead of a seperate one like their ELP). Word on the street is they're doing it so that the SEC can get the public (us) off their backs by getting rid of "flash" order types (like their new one), while directedge keeps their original flash program (ELP) going. It seems ISE, Knight, Citadel and GOLDMAN have better lobbyists than NASDAQ/BATS/NYSE combined.
Why spend money on programmers, infrastructure, development of intellectual capital, and legal fees to protect that capital, when the result is less than 1% of revenues?
I've said all along that HFT is a small percentage of revenues, although I doubt it's less than 1%.
The more troubling conclusion is that we have no idea where the revenues are coming from. It is NOT a crime to make money prop trading. However, as a public company, banks should be required to disclose the sources of the revenues. All we ever hear from GS is where they are NOT making money (didn't make money on AIG, didn't make money on TARP, not making money on HFT).
What if the auto industry stopped disclosing sales numbers, and simply reported a lump sum of 'proprietary' profits?
whatever regulation might come one can be pretty sure that goldman will write it to their advantage and exclude competition. I don't believe a word they say. Goldman has NOTHING to do with free market capitalism. They believe it their responsibility to "run the casino". That's what the letter says. We run the casino with integrity. If you play by our rules, listen up, pay accordingly, then welcome to the club.
On the subject of Chinese fire walls,
Can we get the addict away from the drug?
Can we get Goldman out of all their government power perches?
I would love to see how Goldman would do in a FREE market without their government power.
Goldman would probably do just fine. And the conspiracy theories would eventually fade. Public confidence in the banking system would begin to recover. Egos will never let that happen.
Italians claim country run by Goldman Sachs
By Ambrose Evans-Pritchard
Published: 12:01AM BST 29 May 2007
http://www.telegraph.co.uk/finance/markets/2809685/Italians-claim-countr...
I plan on sitting on FAZ. Cant go wrong...it is cheap enough that I can use it as a hedge for my entire retirement savings. So what if I lose $20K, I have already easily lost that in those accounts year to date.
Please don't sit on FAZ as a 'hedge'. You realize all the leveraged ETFs eventually go to zero, right? That's why UBS and other brokerages have banned clients from trading them. They are NOT long term hedges. FAZ could be lower in 3 months, along with the market. That's not a hedge.
Yes, that won't work!
"...how Goldman Sachs conducts business to ensure the highest levels of integrity."
ROTFLMFAO...kinda like a thief saying how he steals only with "the highest levels of integrity".
News Flash:
Flash Trades to be banned
ya right
Yeah, they'll just call it something else like "Goldman's ethical trades" from now on.
*SEC PLANS TO BAN `FLASH TRADES' OF STOCKS IN U.S., SCHUMER SAYS
holy crap.
Goldmanfella's
I'm not saying that Goldman is ethically comparable to the mob, (ok, I am)
but, does this:
http://www.reuters.com/article/ousiv/idUSTRE5732GJ20090804
remind anyone else of this: http://www.youtube.com/watch?v=glSN4qvjt2E
When Goldman says 98% of its trades are "liquidity
providing" does that mean that only 2% are short sales?
I know that you guys don't know anything except about equity markets, but the vast vast majority of GS revenues are from fixed income. But since you don't know what a bond is, I guess that is too hard to comprehend.
you bring up a terrific point. goldman's bid/ask spreads on CDS (in which they have the biggest inventory) come at around a nice, juicy 30bps... not to mention the sweet picks in HY and, to a lesser extent in, IG. But since you know so much about bond markets, please clarify why GS' prop FI traders sit RIGHT NEXT TO their biggest flow traders and $10bn + mutual funds sales coverage. Actually, don't... we will provide some insight on this topic soon.
If you don't like their b/o then don't trade with them....and a wide b/o is only of any use if you can find both sides of the trade.
As for prop traders sitting next to the flow guys. There isn't necessarily a problem with this. After all, what's to stop a flow trader front-running a client order just by refusing to make a market, and then trading the other side?
oops!forgot about their first call at the voice brokers at the IDB shops where they help harvest the fruits of the latest CDS convexity cum rumor
I sense lots aaa jealousy and angst amongst my comrades here. Let's profit from this new development instead of whining and feeling sorry for ourselves that we are not with at or over GS. The green fella is not out there to get ya. Sorry to break it to you like that though…..oh btw I would suggest investing in Lilly I think they still hold the patent for Zyprexa.yea?
I sense you expect a lifeboat on the Titanic you are still riding. Maybe it's time to graduate and get a real life where Lilly got no live.
yup you are probably right. My experience shows that US lets things fall flat on the face and eat dirt from the inner core of the earth…….and then the free market is allowed to come to play and the unequal distribution of power; money whatever you call it is allowed to correct itself. BOOOOYAAAA
LOVE your mature optimism.
I propagate that you join in the fun and make some money before the gov bans and takes away any part of fun from you, now that you think you got something cause you read about the high frequency trading and you think oh I can join the ride they will ban it and you will be again left out of the loop. Or you can sit and complain, whine and cry over the injustice of some people having more power then you.
Go trade.
Regarding # 3:
Goldman's prop desk is on a separate floor than the larger trading desk. I have been in the office at 85 Broad st. and have been in the prop desk division... just so you know....
I've heard they sit next to each other. They even have each others' lines on their dealerboards so they can listen in to clients placing their orders roflmao
Whenever you’re called on to make up your mind,
and you’re hampered by not having any,
the best way to solve the dilemma, you’ll find,
is simply by spinning a penny.
No—not so that chance shall decide the affair
while you’re passively standing there moping;
but the moment the penny is up in the air,
you suddenly know what you’re hoping
It says their HFT doesn't see client order flow, but says nothing about non-client order flow.
Uh oh. Someone is able to think critically. Ignore the red dot on your forehead as you pass by the window.
If you want to destroy Goldman, do it the following way :
their stock price is at very high levels. In order to sustain P/E ratios they have to deliver better results for the next quarters. Infinitesimal calculus tells you they cannot increase earnings indefinitely. They are running into mathematical upper earnings limits. Do it like they do it on derivatives markets. Build excessive long positions and exaggerate the move to the hilt,i,.e. extend the rally over Bollinger Bands and every single resistance. Thus you create "tension" similar to a rubber band...
Meanwhile buy out of the money puts - scale them just below their market price as long as you create "tension" .
Dissolve the "tension" and sell your inventory market regardless of prices paid, destroy support areas "expert analysts" have pronounced "solid". Creating a high volume sell off, other herd like mentality crowds will follow you.
You are creating very profitable put option positions. The Greeks will help you. Of course you can leverage the idea and ask State Street or other well known stock lenders for some Goldman stock and dump some extra short positions on them.
Just my 6 cents otherwise I have no other criminal idea to floor them...I just know that you have to be as brazen as they are in order to make them bleed...
Did I see the words "integrity" (without "lack of") and "Goldman" in the same page?
As a former (and not by my own choice so if anything I'd have an axe to grind) employee of GS and direct report of Greg Tusar (whom I've known almost 10 years and is highly ethical), I've been on most every trading floor in the firm. Most of the agency business is conducted electronically through separate systems and managed by a team in another STATE (across the river in NJ) under a separate broker-dealer.
The high-touch client flow businesses (equity, equity derivs, credit) are on a separate floor from the HFT prop businesses and built on separate systems. Other prop businesses sit on yet a third floor and mostly don't even trade through GS brokers or systems. I've personally seen employees from one business refuse to even share gross volume numbers from clients across the wall to senior management (not even direct trading staff).
None of this is to claim GS doesn't play hardball or take advantage of legal opportunities to profit or to lobby for regulation that benefits the industry. They are a private company run by some of the smartest people I've ever met with a fiduciary duty to shareholders to maximize profit. If enough market participants really thought they were so evil, GS wouldn't get business and thus would quickly stop making money.
well fanboys - why don't you respond to reasonable comments like this? what a bunch of douchebags this site has attracted.