April 1, 2014 5:42 pm

End of Goldman era on the NYSE floor

U.S. Stocks Fall With Emerging Currencies as Treasuries Advance©Bloomberg

Goldman Sachs is leaving the floor of the New York Stock Exchange.

The investment bank, whose history has been intertwined with that of the downtown Manhattan exchange since 1896, is in the process of selling its “designated market-maker” unit, according to people familiar with the matter.

The noisy trading floors of the open outcry era fell quiet years ago, apart from small telegenic huddles of activity at the start and finish of each day, and the planned exit highlights just how much the business of stock trading has changed.

Goldman paid $6.5bn in 2000 to acquire Spear, Leeds & Kellogg, which was at the time one of the most powerful trading companies on the NYSE floor.

The bank is understood to have lined up IMC Financial Markets, a Dutch trading company, as a buyer for the unit, which analysts now value at about $30m or less.

Designated market-makers, once known as specialists, manage the opening and closing auctions for thousands of NYSE-listed stocks and are responsible for providing liquidity in individual stocks.

Over the last decade, NYSE’s share of US stock trades has fallen from more than 70 per cent to 12 per cent, as alternative trading venues run by banks including Goldman and rival exchanges such as Nasdaq and BATS Global Markets have taken market share.

IntercontinentalExchange acquired NYSE Euronext, the parent company of the exchange, last year in a $11bn deal out of a desire to own NYSE’s London-based interest-rate derivatives franchise known as Liffe.

The NYSE and Goldman declined to comment. The unit has drawn interest from several computerised trading firms, some of which have already built a presence on the floor.

Goldman will retain a brokerage role and continue to provide liquidity electronically for NYSE stocks, one person close to the matter said. Other Spear, Leeds assets have helped it build lucrative electronic platforms.

A sale comes amid a broader reappraisal of Goldman’s equity trading business and as stock market participants deal with the fallout of Michael Lewis’ latest book, Flash Boys: A Wall Street Revolt , which has drawn attention to the evolution of the US market structure and rise of high-frequency trading.

Goldman manages 640 listed issues from about 500 companies and ranks third among the six remaining market-makers on the NYSE floor, behind Barclays and KCG.

Bank of America Merrill Lynch sold its floor market-maker business in 2011 to Getco, the high-frequency trading firm, which has since merged with Knight Capital to form KCG.

Barclays paid $25m in 2010 to buy the floor-based business of LaBranche & Co, whose founder had a seat on the exchange floor in 1912.

Goldman heralded the Spear, Leeds acquisition as a way to nab a greater slice of the market for electronic stock trading. In more recent years, Goldman has written down the value of the business and cut the number of people it employs on the floor.

The NYSE requires that designated market-makers maintain a certain number of specialists and their companies must register a specified amount of capital with the exchange. The work is done from booths attended by specialists that are displayed prominently for television camera, giving designated market-makers such as Goldman free advertising and access to companies going public.

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