Goldman Sachs Electronic Trading Announces the Launch of Its Enhanced Shortfall Model

Discussion in 'Order Execution' started by ASusilovic, Aug 9, 2009.

  1. NEW YORK--(Business Wire)--
    Goldman Sachs Electronic Trading (GSET) announced today the release of several
    significant enhancements to the Goldman Sachs Shortfall Model (GSSM). The GSSM
    generates expected shortfall numbers, which are estimates for the average change
    in stock price a trader may create by executing an order. Two major enhancements
    to the GSSM include:

    * improvements to the US equities model
    * calibration of that new model specifically for US exchange traded funds

    The key enhancement to the US equities model is the removal of market
    capitalization buckets. Stocks within the GSSM are no longer classified into
    small, mid, and large-cap categories, which can be extremely fluid in times of
    increased volatility. Instead, the model has been enriched with a more flexible
    functional form that captures liquidity differences across the market
    capitalization spectrum and allows the model to better predict trading costs.

    The addition of an ETF-specific version of the enhanced shortfall model allows
    for better transaction cost prediction when trading ETFs. While the old model
    included ETFs as part of the estimation universe for equities, ETF model
    coefficients are now estimated separately based on a large sample of executed
    orders for ETFs only.

    "While we continuously monitor the predictive ability of our shortfall model,
    the significant volatility and dramatically changing US equity landscape of the
    past year underscores the value of these changes, which we researched over an
    extensive period of time," said Ingrid Tierens, Managing Director and head of
    equity execution strategies, GSET. "With this new model, clients benefit from an
    enhanced ability to predict shortfall estimates, not only for single-stock and
    portfolio trades, but also for ETFs, which have seen significant growth over the
    past few years."

    The GSSM is based on Goldman Sachs` own executed orders data, rather than
    publicly available tick data, and is re-estimated frequently to reflect recent
    market conditions and uses factor inputs that are updated on a daily basis. Both
    customers of GSET, utilizing its electronic tools and services, and Goldman
    Sachs traders utilize the GSSM.

    Goldman Sachs customers can access the GSSM in a variety of ways. The model is
    utilized for pre-trade analytics as well as daily, monthly, and quarterly
    post-trade reports. The GSSM is fully integrated in two GSET algorithms, OptimIS
    and Port X. The GSET Strategies team also utilizes the model in equity execution
    and portfolio optimization analyses. Clients trading electronically will be able
    to access the model in REDIPlus version 9.1 (to be released in September, 2009),
    or via web-based reports. In addition, the model is fully integrated with Axioma
    Portfolio OptimizerTM, a third-party optimization and portfolio construction

    About Goldman Sachs Electronic Trading

    Goldman Sachs Execution & Clearing, L.P, through its GSET offering, provides
    clients with the necessary tools to manage their trades from start to finish,
    from pre-trade analytics to post-trade analysis. Clients access our products via
    REDIPlus®, our top-ranked EMS platform, or via FIX. Customers can seek liquidity
    using our suite of multi-asset algorithms, route to optimal destinations using
    our SIGMA smart router, and take advantage of non-displayed liquidity through
    our SIGMA and SIGMA X non-displayed liquidity suite. Along with providing
    clients access to global equity markets, we also offer FX, Futures, and Options
    across North America, Europe, and Asia.

    The Goldman Sachs Group, Inc. is a leading global financial services firm
    providing investment banking, securities and investment management services to a
    substantial and diversified client base that includes corporations, financial
    institutions, governments and high-net-worth individuals. Founded in 1869, the
    firm is headquartered in New York and maintains offices in London, Frankfurt,
    Tokyo, Hong Kong and other major financial centers around the world.