Goldman Sachs Group will start an electronic trading system for corporate bonds this month as the fifth-biggest US bank adapts to regulatory changes and competition, according to a person familiar with the plans.
The platform, called GSessions, has been under development for a year, said the person, who declined to be identified because the New York-based firm isn't making details public yet. The Wall Street Journal reported the initiative on its website.
The move comes three weeks after BlackRock, the world's largest money manager, said it was planning its own bond-trading platform called Aladdin Trading Network that would allow clients to bypass Wall Street firms such as Goldman Sachs. Last year, Goldman Sachs's revenue from market making and principal investments in credit, including corporate debt and derivatives, fell to $2.72 billion (Dh10 billion) from $8.68 billion in 2010, according to a regulatory filing.
The profitability of Wall Street firms is being challenged by regulations requiring that they hold more capital as a buffer against potential losses from assets such as corporate debt. A US law that seeks to prohibit federally insured banks from making bets with their own money may also hinder lenders' ability to commit money to buy securities from clients, according to analysts including Brad Hintz at Sanford C. Bernstein & Co.
In presentations over the past two years, Goldman Sachs executives have said the firm succeeded in developing electronic trading capabilities in the stock and currency markets and were also preparing for a higher percentage of fixed-income trading becoming computerised.
"Connectivity with clients and what we call owning the desktop is going to be very, very important," Chief Financial Officer David A. Viniar said in a presentation in February 2011.
"Having those capabilities, having first-mover advantage, we think is going to be key coming out after the new regulations."
GSessions will start by offering two five-minute trading sessions a day, one in an investment-grade bond and another in a high-yield, high-risk security, the person said. Speculative-grade, or junk, bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- at Standard & Poor's.
At the start of each session, Goldman Sachs will post a bid and offer price and notify clients of the maximum amount of liquidity the firm is willing to provide to fill orders, according to the person.
Rather than matching trades between clients, Goldman Sachs will act as the counterparty to all trades and collect the spread, or difference, between the bid and offer prices, the person said. That gap will be lower than what Goldman Sachs earns on non-computerised trades, the person said.
BlackRock, based in New York, said on April 12 that it was creating Aladdin Trading Network to lower trading costs for customers. BlackRock is awaiting approval from the Securities and Exchange Commission for its platform. Brian Beades, a spokesman for BlackRock in New York, declined to comment.
MarketAxess Holdings's electronic trading system for US and European investment-grade, emerging markets and other types of bonds said last month that it had a record $58.7 billion of transactions during March. Other electronic trading systems for fixed income include Tradeweb Markets and Bloomberg, the parent company of Bloomberg News, which also provides news and information to the financial community.