Goldman Sachs’s Waning Dark Pool Revamped to Woo More Tradesby and
Bank accustomed to being top player, but not among dark pools
New system, called Sigma X-Squared, to debut with two stocks
Goldman Sachs Group Inc. is accustomed to winning, but its dark pool lags far behind private stock-trading systems run by its fiercest rivals. It has a plan to start turning that around.
The bank is debuting a new dark pool on Friday. At first, only two stocks will trade on the new platform, dubbed Sigma X-Squared, but everything else will be shifted over within about a month from the older Sigma X system, which will be shuttered, according to a client memo obtained by Bloomberg News.
From investment banking to bond trading, Goldman Sachs is among the biggest players. But with dark pools for U.S. stocks, Sigma X has slipped to about 10th place, falling well behind the top markets run by UBS Group AG, Credit Suisse Group AG and Deutsche Bank AG, according to data compiled by the Financial Industry Regulatory Authority. It wasn’t always so, with Sigma X once sitting near the pinnacle of the rankings.
The New York-based bank has also lost ground to Morgan Stanley when it comes to stock trading in general. Goldman Sachs posted $1.1 billion less revenue than its rival last year, the biggest gap since Goldman Sachs led the market in 2013.
Goldman Sachs’ new dark pool will run differently than Sigma X did. It will allow clients to choose which kinds of trading behaviors they want to be on the other side of, according to the memo. That’s opposed to Sigma X’s old system, which takes a more general approach to how clients choose who they trade with.
The new pool will run on Nasdaq Inc. technology, according to a person with knowledge of the platform, the result of a partnership announced last year. Nasdaq is the third-largest owner of U.S. stock exchanges, and also supplies trading software to clients who want to run their own markets.
Dark pools were developed as a way for money managers to secretly get large trades done without tipping off traders who’d seek to move prices against them. They have been subject to regulatory scrutiny in recent years. Deutsche Bank, Credit Suisse and Barclays Plc have all been fined tens of millions of dollars for infractions in their dark pools. Goldman Sachs in 2015 was hit with a smaller fine of $1.8 million from Finra for reporting inaccurate trading information over a period of eight years.