This page has been archived and commenting is disabled.

Goldman's Defense Of HFT To The SEC

Tyler Durden's picture


In a leaked document of Goldman's internal defense of various trading practices including HFT and dark pools, before the SEC, the dominant force out of 85 Broad provides a very good if biased overview of virtually all issues that the SEC is currently evaluating and looking to address per the proddings from senator Kaufman.

The full document is presented below. What is interesting is that while Goldman makes token concessions about certain aspects of market topology, it is virtually adamant in its "do not touch" stance on precisely those components in which it is becoming a practical monopoly power.


One thing to note, which refutes much of the claims that HFT dominance has lowered trading costs, the argument at the core of Goldman's position, is that if one were to superimpose the VIX with the latest Implementation Shortfall data out of ITG, what is obvious is that even as market volatility has declined, the rise of the machines (best seen here) has not reduceed IS, and in fact trading costs have continued to creep higher over the past 3 years. We would be curious to hear Goldman's explanation of this particular phenomenon.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 10/07/2009 - 17:21 | Link to Comment deadhead
deadhead's picture

thanks to zh as well as others instrumental in making the material public.

Wed, 10/07/2009 - 17:21 | Link to Comment RobotTrader
RobotTrader's picture

Joe Six is playing like 1999

New Robo post...

Wed, 10/07/2009 - 17:29 | Link to Comment Anonymous
Wed, 10/07/2009 - 17:35 | Link to Comment Anonymous
Wed, 10/07/2009 - 17:47 | Link to Comment peterpeter
peterpeter's picture

Clusterstock ran it last week.

I'm seeing nothing in it that GS would like to keep private regardless.

Wed, 10/07/2009 - 17:43 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

"The US equities market is increasingly efficient and is broadly regarded as the best in the world."

Wow, they are pumping out the bullshit from the very first bullet point.

Wed, 10/07/2009 - 17:49 | Link to Comment peterpeter
peterpeter's picture

You may not like the valuations... but if you've ever tried to trade in any other market and car about depth of quotes, tight spreads and low costs of trade (factoring in all fees to agencies, ECN/Exchanges), they are correct.


Wed, 10/07/2009 - 17:54 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

Empirically I believe the market has lost its ability to efficiently price-find.  That's my opinion, of course.

Wed, 10/07/2009 - 18:05 | Link to Comment Anonymous
Wed, 10/07/2009 - 18:29 | Link to Comment Anonymous
Wed, 10/07/2009 - 18:29 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Goldman Sachs has been putting lipstick on pigs for decades so making HFT trading look reasonable was a walk in the park.

Wed, 10/07/2009 - 20:07 | Link to Comment Ando
Ando's picture

You don't have to contact GS.  Ill call your BS right here.

Just because the VIX says there isnt much volatility doesnt mean there isn't a ton of risk in this market right now.  Tyler points this out every day.  So liquidity providers should be compensated for the risk they take on, hence increased IS.

About that report from ITG.  Where do they get that data?  Its probably there own IS costs.  Looks to me like what they are showing is that they can't compete in the business anymore.  Maybe they need better algorithms.  I doubt Fidelity has costs that high.

Thu, 10/08/2009 - 00:44 | Link to Comment Assetman
Assetman's picture

When a 'liquidity provider' focuses its efforts in trading a billion shares a week and 40% of NYSE volume is concentrated in 5 stocks (not to mention a certain ETF), one would think the liquidity rebates the exchanges are providing would provide at least a decent amount of compensation for the risks being taken.  Well, except for the volume in the thousands of other issues to which the 'liqudity provider' has very limited participation.  That might be one explanation for higher IS trend since Mar-09.

I agree with the VIX... it's more a complacency measure than a risk measure, per se... though CDS spreads have also trended down significantly during the same time period risk assets.  I'm curious about the ITG data as well, but wouldn't it be a hoot if we could independently verify GS' own IS costs during the same time period.  Comparing the IS trend of GS against pure agency brokers would be a fascinating exercise. 

Perhaps these "smart routers" and their "algorithms" would to better in providing 'liquidity breadth', rather than 'liquidity depth' in a handful of very suspect (bankrupt) issues.  Otherwise the activity appears more like "momentum creating" than "liquidity proividing" to me.

Thu, 10/08/2009 - 02:03 | Link to Comment Hephasteus
Hephasteus's picture

If you call monemtum creating dressing corpses up in hot outfits and walking them around like it's freaking weekend at bernies... then yes.

Let em flip the stocks to crazy levels until the whole world tells them stick their full blown computers pretending to be routers up their butt.

This is just like Enron paying people to act like they are trading oil back and forth like crazy to impress visitors. It's all show and no go.

If we let these derivatives market infest EVERYTHING the entire country will have rolling blackouts just like california because some asswipe is playing i'm in charge of the wire because i've invested a few bucks in this electricity.

Enron isn't over. WTC 7 fell to keep it alive. It's not even half way over.

Wed, 10/07/2009 - 21:36 | Link to Comment Hephasteus
Hephasteus's picture

Would you GODDAMNED MOTHERFUCKERS stop calling complete order manipulation smart routers. There's nothing smart about grabbing a stock and pinging the exchange every 200 ms till you find a sucker to buy it. it's electronic stock flipping. Nothing more nothing less.

Thu, 10/08/2009 - 01:10 | Link to Comment Anonymous
Thu, 10/08/2009 - 01:35 | Link to Comment Careless Whisper
Careless Whisper's picture

"Proliferation of faster and less expensive hardware has leveled the playing field..."

Finally, a level playing field.

Thu, 10/08/2009 - 02:05 | Link to Comment Hephasteus
Hephasteus's picture

Prints money and loans it out at interest.

woo. I loves me a level playing field.

Thu, 10/08/2009 - 08:15 | Link to Comment Anonymous
Do NOT follow this link or you will be banned from the site!