Go to the Globe and Mail homepage

Jump to main navigationJump to main content

The Goldman Sachs booth on the floor of the New York Stock Exchange (Chris Hondros/2008 Getty Images)
The Goldman Sachs booth on the floor of the New York Stock Exchange (Chris Hondros/2008 Getty Images)

Goldman shutting proprietary trading Add to ...

Goldman Sachs Group Inc. is closing its principal strategies desk as U.S. regulators try to limit trading risk that major banks take with their money, Bloomberg News reported Friday.

The report, citing two people with knowledge of the decision, said Goldman would delay announcing the move as 65 to 70 members of the unit sought new jobs. Some traders and support staff could be reassigned within the firm, and a team in Asia could look to start a new hedge fund, it said.

Goldman Sachs spokesman Ed Canaday declined to comment on the report.

Goldman would be the latest Wall Street bank to change its trading business to try to comply with the "Volcker rule," which limits the extent to which banks can bet with their own capital.

A source said Tuesday that JPMorgan Chase & Co. had told commodities traders who bet with the bank's money that their desk would be shut down as the bank moved to comply with new laws.

Over time, other groups at the bank are also expected to shut down their proprietary trading desks.

But many outside investors and analysts wonder whether these banks' changes are simply cosmetic steps designed to appease regulators and the broader public.

"How do you define what is proprietary trading and what is not?" said Anton Schutz, president of Mendon Capital Advisors, which specializes in financial stocks.

As banks have started restructuring to comply with the Dodd-Frank financial reform law signed in July, Goldman's trading plans have drawn particular attention, because the firm generates so much of its revenue from trading its own money.

Goldman has said that as much as 10 per cent of its revenue comes from proprietary trading, but some analysts believe that figure is based on a narrow definition of "proprietary trading."

Banks typically have traders on proprietary desks that trade with multiple banks using the firm's money.

But they also have traders who trade with customers and other banks to make markets. It is not often clear whether a customer trader is buying a security to help a client complete a trade, or to take on a particular risk for the firm.

Shutting down proprietary trading desks alone may not mean Goldman as a whole reduces its risk-taking or stops making bets with its own money, a head of equities at a rival bank said.

"That's really the question - is the firm just taking more risk in its customer business after shutting down its prop desk?" he said.

Goldman has explored multiple options for the desk in the aftermath of the new U.S. financial reform law, sources familiar with the matter told Reuters last month.

One option Goldman considered was spinning off the desk into a separate fund that would raise its own capital from investors, the sources said.

Another option was to shift the unit's employees into Goldman's asset management business, where they would become part of a $7-billion (U.S.) internal hedge fund that manages money for the firm's wealthy customers.

The equity head at a rival bank said he was sure Goldman would not simply move its prop traders to customer desks, because prop traders typically do not want to work with clients, and regulators would likely frown on the move.

Goldman's Principal Strategies group is housed within the equities division, and is led by Hong Kong-based Morgan Sze.

Bloomberg reported that Mr. Sze may set up a fund with a smaller team focused on Asia. It also said that employees in London and new York were considering different options.


Report Typo/Error

Follow us on Twitter: @GlobeInvestor


More Related to this Story

Next story




Most popular videos »

More from The Globe and Mail

Most popular