By Goldman Sachs…
A 50-odd page presentation from the former investment bank has surfaced – prepared by three Goldman MDs for a meeting with SEC officials back in September.
The document provides a detailed defence of the benefits of high frequency trading, dark pools, short-selling, exchange co-location and all those other matters now on the radar of SEC chairman Mary Schapiro.
A copy is available in the Long Room here. Alternatively, you can get it on Scribd or view a partial slide show at Business Insider, who kindly drew our attention to its existence.
First impressions: The GS case is clear and well-argued. The general efficiency of US equity markets has indeed improved greatly over recent years, and much of this can be attributed to innovative trading developments.
The result has been much tighter bid/offer spreads – benefiting retail and wholesale participants alike.
Indeed, it is worth re-visiting this Nomura report from about a week ago, looking at global liquidity. In trading terms, US equity markets are eight times the size of their nearest rival, China. And, in terms of spreads, an average 2.9 basis points in New York compares with 7.2bp in London and a whopping great 19bp in Tokyo.
Also, Goldman makes a fair point that “dark liquidity” has been with us forever, in equity market terms. Before computerised matching it was done with sheets of faxed information. And before that it was done verbally, usually over an extended liquid lunch.
So we could add a point that Goldman didn’t make to the SEC: equity markets are probably healthier, as well as tighter.
Related links:
What Goldman thinks of regulation – FT Alphaville
Gawker’s crowd-sourced Goldman Sachs witchhunt – FT Alphaville