Goldman Sachs Group Inc. (GS) is looking to sell its New York Stock Exchange market-making unit to a Dutch investment firm, as computers replace traders who once dominated the business at the corner of Wall and Broad streets.
IMC Financial Markets is negotiating to buy the floor-trading business, according to two people familiar with the matter, who asked for anonymity because talks are private. Goldman Sachs is seeking as much as $30 million, one person said. The investment bank, which joined the NYSE in 1896, bought the operations in 2000 as part of a $5.4 billion purchase of Spear, Leeds & Kellogg.
The NYSE’s huddles of traders have been shrinking for years as more transactions are handled electronically, making humans less integral. Atlanta-based IntercontinentalExchange Group Inc. pledged to preserve the trading floor in lower Manhattan when it agreed to buy the exchange in 2012.
“The business has evolved away from humans on the exchange,” said Devin Ryan, an analyst at JMP Group Inc. “Only a fraction is being done on the floor with humans versus how much is being done electronically.”
IMC, which stands for International Marketmakers Combination, is a high-frequency trading firm and asset manager founded in Amsterdam in 1989. It has offices in Chicago and New York, and conducts transactions on more than 90 exchanges around the world, according to its website. Remco Lenterman, an IMC managing director, and Tiffany Galvin of New York-based Goldman Sachs said their companies don’t comment on speculation.
Selling the floor-trading business wouldn’t mean Goldman Sachs would stop making markets. The firm reaps the most revenue from equities trading among banks globally. It runs its own trading venue called Sigma X and holds a stake in exchange operator Bats Global Markets Inc.
The NYSE has long relied on traders known as designated market makers to facilitate buying and selling. The firms help run opening and closing auctions of NYSE-listed stocks. Traders wearing vented jackets labeled with their names and numbers gather around a market maker for that stock, who calls out prices. Some eat peanuts, tossing the shells on the ground.
“For years, I’ve thought that the exchange was a dinosaur,” said E.E. “Buzzy” Geduld, who sold his trading firm, Herzog Heine Geduld, to Merrill Lynch & Co. in 2000. “Now if you go down to the exchange, there’s not a lot that goes on down there.”
Floor trading has been declining for years. In 2001, U.S. stock trading switched to decimal share pricing, from 16ths of a dollar, cutting the spread traders earn between purchases and sales. The Securities and Exchange Commission instituted a rule in 2007 that U.S. stocks must trade on the venue that has the best price at any time, helping upstart exchanges take business from established markets.
“It’s an incredibly competitive marketplace,” said Sang Lee, managing partner at Aite Group LLC, adding that he isn’t surprised by Goldman Sachs’s decision. “The amount of investment you need to put into the operation doesn’t justify the amount of profit.”
The market makers, who used to be called specialists, have dwindled. LaBranche & Co., once the largest specialist, sold its floor-based unit to Barclays Plc (BARC) for $25 million in 2010. Getco LLC, now part of KCG Holdings Inc., agreed to buy Bank of America Corp.’s business in 2011.
Goldman Sachs is the third-biggest designated market marker behind London-based Barclays and Jersey City, New Jersey-based KCG, according to a person familiar with the businesses. Last year, Goldman Sachs agreed to sell a majority stake in its Redi trading-technology unit that was based on software acquired when it bought Spear Leeds. The Spear Leeds purchase also included an execution and clearing business that remains within Goldman Sachs.