NEW YORK (MarketWatch) -- As high frequency trading continues to proliferate, the head of the powerful electronic trading desk at Goldman Sachs Group Inc. says it may be time to rethink regulation in this new trading landscape. In the wake of a collapsed stock market in 2008 that drastically cut the pocketbooks of all investors and traders, high frequency trading, the use of computers or complex algorithms to trade at lightning speed, is making up roughly half of the daily activity. At the same time, Goldman Sachs has been one of the largest beneficiaries of this new landscape in trading, with its electronic trading desks remaining one of the market's leaders. Within Goldman's sprawling trading operations, however, high-frequency trading is a relatively minor player, accounting for less than 1% of its revenue in the first half of 2009, according to the bank. The firm's electronic trading operations overall are continuing to grow, yet it acknowledges the current arms race for speed isn't all good. Newer, less regulated firms are making up more and more of the market share. And, given how much trading now originates and ends with computer programs, it may be time for Regulation NMS to get a face lift. "The reality is our inter-market routing has become highly technical and highly complex and it's not a bad idea to step back and take a look at it," said Greg Tusar, managing director of Goldman Sachs Electronic Trading, in an interview. "We need to find out if there is anything we should change and where the gaps in regulation should be closed." Notably, Regulation NMS, as it is commonly called, isn't all that old. It was passed in 2005 by the Securities and Exchange Commission and detailed a series of new regulations designed to protect orders and access for all participants. Tusar says some changes are needed, but added it would be "bad policy" to make drastic moves. He notes the spreads between how much stocks are bought and sold for are narrower than they've ever been, while transaction costs have also fallen, both of which are a benefit to even the most retail of investors. One of the most heavily discussed factors in the growth of high frequency has been the evolution of the modern day market maker. Firms like Getco LLC and Hudson River Trading trade in and out of stocks in milliseconds to make fractions of a cent. Their proliferation has provided liquidity to a market in dire need of it, and helped the decline in stock spreads and transaction costs. Yet, Tusar says even with all the benefits these firms provide, a little more oversight is in order. Unlike more traditional market makers, some high frequency market players don't have an obligation to be in markets in good times and bad. In addition, if they become aware of information, such as through a "flash" order - when an order is routed through a private liquidity pool before being sent onto other exchange for filling - they don't have an obligation to act on that information. It's a sentiment echoed by heads of electronic trading at several other Wall Street firms and an issue some said they have brought to the attention of the Securities and Exchange Commission. http://www.marketwatch.com/story/goldman-electronic-trading-head-more-regulation-needed-2009-07-30 ROFLMAO ! I almost spit my coffee...
I don't know why you are all that surprised by his comments . . . It is an incredibly LOW MARGIN game in which GS is not the only player in town. Just ask Citadel.