High Speed Trading, 2008-2009: Goldman Outmaneuvered JPMorgan in Execution

Includes: BAC, GS, JPM, MER
by: Zack Miller

In a hyperactive market, brokers continue to compete on speed. According to the Tabb Group (quoted in this Bloomberg article), almost 61% of U.S. stock market activity and 70% of individual trades were part of a high-speed trading technique. For brokers competing in this environment, technology and services are critical in executing these trades.

Institutional clients judge their brokers on a lot of criteria — one big thing is trade execution. Bloomberg:

What you needed this past year versus 2007 and early 2008 was lots of tools, technology and the use of gray matter,” says Peter Weiler, executive vice president of global sales at Abel/Noser Corp., a New York-based broker that also analyzes trading costs. “Brokers needed to bring their A game.

With this backdrop, Goldman Sachs (NYSE:GS) displaced JPMorgan (NYSE:JPM) as the firm that got its institutional clients best pricing during Bloomberg’s 12 month ranking period from July 2008 to June 2009.

Goldman was the worldwide winner among brokers that handled at least $25 billion in trades in getting an average price closest to the stock level when the order was received, according to Ancerno, a spinoff of Abel/Noser that audits costs for $7.5 trillion of trades by 500 money managers in more than 70 countries every year.

What’s interesting to see is the movement of brokers on the list. JPMorgan, the top broker during the previous year’s polling, slipped to #4. Bank of America (NYSE:BAC), with Merrill Lynch in hand, jumped up to #2.

The same article attributes Goldman’s success to its internal tech capabilities and its ability to match trades across mutual funds, asset managers and other institutional clients under its own roof. In other words, big clients turn to Goldman because their sizable orders are less likely to leak out into the general market.

Any time a client trades with us, we try to match them off against our natural internal flows,” he [Paul Russo, GS's head of US equity trading] says. That way we can minimize the trading footprint we leave in the marketplace.


Goldman customers lost an average 0.275% when they transacted through the bank while Bank of America customers lost 0.327%.

Clearly, the equity business is a technology business now.

What the humans need to do is to make sure their firms have the best equipment, trading know-how and programmers.