In a week where much of Wall Street has been talking about Michael Lewis’ new book and high-frequency trading, on Tuesday, the news broke that Goldman Sachs might sell its New York Stock Exchange floor-trading unit.
Justin Baer and Bradley Hope had this story in the Wall Street Journal:
Goldman Sachs Group Inc. is close to selling a once-iconic trading business based on the floor of the New York Stock Exchange for a fraction of what it paid less than 15 years ago, according to people familiar with the matter.
Goldman is in talks to sell the business, once part of Spear, Leeds & Kellogg LP, to Dutch firm IMC Financial Markets, the people said.
Goldman paid $6.5 billion in 2000 for the business, which included a division that puts buyers and sellers together on the floor of the NYSE. A final deal isn’t imminent, though the companies are discussing a price of as much as $30 million, the people said, a reflection of the dramatic changes that have transformed U.S. markets since Goldman made the initial deal.
Remco Lenterman, chief executive of IMC Financial Markets, said the company doesn’t “comment on rumors or speculation.”
Bloomberg pointed out in a story by Sam Mamudi, Zeke Faux and Michael J. Moore that the NYSE’s floor traders have been shrinking and they may be purchased by IMC, a high-frequency trading firm:
The NYSE’s huddles of traders have been shrinking for years as more transactions are handled electronically, making humans less integral. Atlanta-based IntercontinentalExchange Group Inc. pledged to preserve the trading floor in lower Manhattan when it agreed to buy the exchange in 2012.
“The business has evolved away from humans on the exchange,” said Devin Ryan, an analyst at JMP Group Inc. “Only a fraction is being done on the floor with humans versus how much is being done electronically.”
IMC, which stands for International Marketmakers Combination, is a high-frequency trading firm and asset manager founded in Amsterdam in 1989. It has offices in Chicago and New York, and conducts transactions on more than 90 exchanges around the world, according to its website. Remco Lenterman, an IMC managing director, and Tiffany Galvin of New York-based Goldman Sachs said their companies don’t comment on speculation.
Selling the floor-trading business wouldn’t mean Goldman Sachs would stop making markets. The firm reaps the most revenue from equities trading among banks globally. It runs its own trading venue called Sigma X and holds a stake in exchange operator Bats Global Markets Inc.
The NYSE has long relied on traders known as designated market markers to facilitate buying and selling. The firms help run opening and closing auctions of NYSE-listed stocks. Traders wearing vented jackets labeled with their names and numbers gather around a market maker for that stock, who calls out prices. Some eat peanuts, tossing the shells on the ground.
MarketWatch’s blog was one of many writing about the debate over the new world of trading highlighted by Lewis’ new book:
Twitter reaction has been fast and furious to the accusation by the author of the new book “Flash Boys: A Wall Street Revolt” that high-frequency traders have an edge over the average stock-market investor.
“High frequency traders have found ways to use their speed to gain an advantage that few understand,” said Michael Lewis, who has written a number of best-sellers about Wall Street, in an interview with “60 Minutes” that aired Sunday.
In the interview, Lewis alleges that high-frequency traders, who use complex computer algorithms, are able to “front run” orders, buying a block of stocks fractions of a second before another buyer and then selling those same shares to that buyer, because they pay for fiber-optic lines that are faster than other lines. He singled out BATS Global Markets, one of the biggest U.S. exchanges, for its role in the market.
Not surprisingly, then, the most vocal defender of HFTs on Twitter Monday was the president of BATS, William O’Brien, who uses the handle @obrienedge, tweeted: “Michael Lewis could not be more wrong when he says the stock market is not a fair or safe place for investors #FlashBoys”
The BATs president acknowledged that there are ways to improve the markets, but that it’s “unjust to accuse people simply for using technology & providing competition.”
The news comes after the Federal Bureau of Investigation is joining other regulators into looking into high frequency trading. The New York Post had this story by James Covert:
The FBI has joined state and regulatory probes of high-frequency traders to see if the firms are guilty of insider trading.
Agents, who started the probe about a year ago, are looking to see if the HFTs used information to trade ahead of large institutional orders, an FBI spokesman told a number of media outlets on Monday when news of the investigation first surfaced.
In one possible scenario, agents would look to see if a high-speed trading firm profited by jumping ahead of a huge buy order, and then quickly exited after the giant order pushed the stock higher.
One thing’s for certain, traders have never been scrutinized – by the press, the public and regulators. Many millions have been made on milliseconds and it seems that Goldman is betting that’s the way the world will go.
