- Goldman Sachs consolidates automated FICC trading business
- UBS, RBC named algorithmic traders in fixed-income roles
Wall Street’s beleaguered bond traders are getting a little help from their e-trading and equity-market peers.
Just this week, Konstantin Shakhnovich, a partner at Goldman Sachs Group Inc. with a background in financial engineering and automated trading, was put in charge of consolidating the bank’s electronic market-making in its fixed-income, commodities and currencies businesses, according to a memo obtained by Bloomberg News.
He’s part of a growing group of executives with algorithmic or equity backgrounds tasked with adapting banks’ fixed-income trading to a tougher business environment. Shakhnovich, who goes by “Shak” and is a supporter of the National Museum of Mathematics, focused on equities trading early in his career, and has been registered with the New York Stock Exchange since 2006, according to a filing with the Financial Industry Regulatory Authority.
“They’re all working more closely together, to figure out how the businesses overlap,” said Kevin McPartland, market-structure analyst at financial-services consulting firm Greenwich Associates in Stamford, Connecticut. “There’s a lot more conversations happening that never would have happened” before.
Goldman is consolidating its automated market-making business as Wall Street fixed-income trading desks face pressure from regulations making it more expensive to handle big trades, and as more trading happens electronically.
The decision is another sign that electronic trading is deepening its reach into debt markets, where many investors still trade by phone. Just 16 percent of investment-grade corporate debt and 4 percent of high-yield debt is traded electronically, according to Greenwich Associates. In the foreign-exchange market, where more than $5 trillion trades each day, more than three-quarters of trades are electronic.
Other banks are carrying out similar changes.
At Royal Bank of Canada, Haider Ali was named to a new position overseeing algorithmic fixed-income and currency trading strategies last year, after doing a similar job for the bank’s equity team. Before RBC, he was at Quantitative Brokers, a broker-dealer that builds trading algorithms for Treasuries and futures.
UBS Group AG last year promoted e-trading executive Giuseppe Nuti to run its U.S. interest-rates trading business. Before UBS, he designed high-frequency proprietary trading strategies at Knight Capital Group, now part of KCG Holdings Inc.
And last month, Sam Kellie-Smith, former global head of equities trading at Morgan Stanley, was picked to run the bank’s shrinking fixed-income trading unit.
Banks’ fixed income businesses have been suffering from higher capital charges, prohibitions against proprietary trading and fewer orders from clients. Goldman Sachs’s revenue from that business fell 15 percent to $7.11 billion in 2015 from the year earlier, excluding accounting adjustments. Morgan Stanley decided to eliminate roughly 25 percent of its fixed-income trading staff during the fourth quarter.
To adjust, dealers are doing more corporate debt trades as agents for their clients, rather than taking risks on their behalf, according to research firm Tabb Group. For investment-grade debt, banks are executing about 30 percent of their trades without taking on risk, up from 5 percent in 2006, the firm found. For high-yield debt, it’s about 70 percent, more than triple the amount compared with a decade ago.
Tiffany Galvin, a spokeswoman at Goldman Sachs, confirmed the contents of the memo and declined to comment further. Shakhnovich declined to comment. The news of Goldman Sach’s e-trading consolidation was previously reported by the Financial Times.
Goldman Sachs last week named Jim Esposito as chief strategy officer of its securities unit. Esposito was previously co-head of the firm’s global financing group.