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Goldman Sachs Clarifies Its High Frequency Trading Practices

Courtesy of Tyler Durden

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

Attachement

 

 

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.

Attachment Size
GSCO HFT Note 7-31 FINAL.pdf 28.28 KB
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