Hybrid Goldman trading system cuts costs for buy-side

Goldman Sachs has seen a significant reduction in trading costs for clients through a new service aimed at merging low- and high-touch trading channels.

Goldman Sachs has seen a significant reduction in trading costs for clients through a new service aimed at merging low- and high-touch trading channels.

Using a method it calls Contingent Crossing, Goldman Sachs said it has been able to help clients complete more block trades by enabling a sales trader to step in when potential matches in a firm’s electronic order flow arise.

Rob Crane, co-head of electronic trading for EMEA at Goldman Sachs, said: “In our conversations with clients over the last year, we found that both specialisation and segregation are still valued, though to varying degrees depending on the specifics of the flow.  ‘Contingent Crossing’ allows our clients, at their discretion, to work orders through the electronic channel, yet have their high-touch sales trader be alerted when an off-setting order arrives within the firm.

“This can result in a much larger block being negotiated than the child level crosses normally resulting from electronic flow.”

The services give a nominated sales trader limited visibility of a client’s electronic order book, who can then contact a client directly should a suitable match be found in order to help facilitate a larger trade.

Block trading has become a major theme across Europe in recent months as regulatory changes in MiFID II will place caps on dark trading activity, but will not affect trades under the large-in-scale waiver that is used for most block trades.

Goldman says Contingent Crossing is largely about providing greater liquidity to clients but will also benefit them in the post-MiFID II world due to its tendency to enable larger blocks.

“Clients want to trade more blocks but it’s much harder to make that happen in a purely electronic environment. Clients have realised a 72% saving in transaction costs via this process when finding these crosses,” said Mike Seigne, co-head of electronic trading for EMEA.

However, order protection is highly valued by the buy-side and Seigne said it was important when developing the feature to give clients complete discretion over whether they would utilise it or continue to clearly separate their electronic and high-touch orders.

“Segregation and anonymity remains important for our clients so our overall model hasn’t changed. This enhancement is entirely within our clients control, only they decide which orders and at what times they would like to avail of this feature,” he explained.

Société Générale also recently spoke to theTRADEnews.com about its own initiatives to offer greater discretion to buy-side clients with its PartnerY solution, that enables them to select which counterparties they would like to trade with.

This too has helped to facilitate more block trades for clients by giving them greater confidence in which counterparties their orders are being exposed to, resulting in larger average order sizes.

Morgan Stanley adjusted its Trajectory Cross dark pool in 2012 to also offer more discretion to clients and prevent gaming of orders and exposure to toxic flow.