Goldman messing up clearing
"cutting-edge technology"
Goldman Sachs doesn’t clear any option market maker firm in Amsterdam. This is the territorial pissing ground of ABN AMRO and KBC, although the latter is slowly losing ground. Their clients Van der Moolen and All Options have scaled back operations in some degree.
In the area of global delta one trading GS clearing is a major player. One would expect these folks at GS clearing to have superior systems and act accordingly – customer isn’t king. To my surprise I learned only the second qualification applies. According to several clients GS combines arrogance with an astonishing lack of professionalism. The CFTC isn’t very fond of Goldman either.
One of Goldman’s unhappy customers has written a sharp e-mail highlighting some of the most painful issues. Goldman Sachs Clearing has a lot to be modest about – some basic trading functions aren’t possible at all. Participating in the opening rotation of the stocks on the LSE shouldn’t be treated as rocket science. Read below for the text of the original e-mail.
————————————————————
Dear Sir,
Our company, signed up with you in the summer of 2009 and now, 1.5 years later, I must say that this was a big mistake. I will explain to you why.
Executive summary:
A. The culture at your company has a theme: “The customer is always to blame”
B. Your systems are sub-standard
Detail:
A. “The customer is always… to blame”
1. The 20k EUR
From an email of your employee on November 4th:
“no formal communication was sent [by Goldman] to [your company] about the REDI outage”
and
“There was no communication on the 2 phone calls we had with [your company] after fills were sent back. If raised then we could have resolved this together”
and
“Given the above course of events GS are not obliged to share the loss experienced when closing this position out.”
So your employee writes: even though REDI was out and even though this was not communicated to us, even though we called twice to talk about this position, Goldman feels it is our problem that there was a position due to outage of Goldman’s system REDI.
This trade cost us 20k EUR. After numerous requests this issue has not yet been settled.
2. The Opening Auction in LSE IOB (Goldman Style)
It is not possible for Goldman systems to enter automatic orders in London International Order Book (IOB) before the opening. If you do, your orders get collected and manually entered after the market opened. So if a price was right before the opening and the order was sent then, it gets entered after the opening manually. The stock moved right after the opening and our order got manually entered by your employee 1.5 minutes after the opening at a price that was totally off. And if that’s not enough, yet another order got entered at an off-price.
This cost us 15k EUR and we had to wait 2.5 months to get restitution. It was offered as a sign of good will because:
“The department said [your company] could have known that Goldman treated Londen International Order Book (IOB) orders like this before the opening”
In hindsight, it turned out there was another setting that would just reject London IOB orders before the opening. The advantage of this setting is that you don’t have to be subjected to a manual order long after you entered the details. The disadvantage is that you cannot enter orders before the opening. But hey, they wouldn’t have been able to be executed at market at open anyhow.
3. The On/off button
One of our computers lost power because the On/off button was pressed. Therefore we asked Goldman to have our orders cancelled. We got this email message from your employee:
“Sent: Wednesday, February 09, 2011 11:14 AM
Cc: gset-mc
Subject: RE: open orders
All [your company]’s orders are now cancelled ( from the FIX line GSIDMA3)”
It turned out that the application at Goldman that was supposed to cancel the orders had crashed and that in real life the orders were still in the market. And some were executed. Goldman kept us out of the market for 1.5 days only to return after we fulfilled their request to state in an email that our(!) problem was solved and that we understood that Goldmans erroneous cancellation procedure was on best effort basis. Of course we did this:
“On Thu, Feb 10, 2011 at 19:45, We <> wrote:
Hello John,
The machine that lost power due to human interference yesterday has been up soon after and I don’t expect this to happen again. As discussed, our cancellation requests with Goldman Sachs are always on Goldman’s best effort basis. Please reconnect us.”
4. If you’re wrong, say you’re not and negotiate
A position had to be closed at the closing auction. Goldman’s system REDI had rejected that order after first accepting it. After a modification on our side it disappeared and therefore did not get executed. The next day’s stockprice gave an 18k loss.
“[Your company] was supposed to know that the REDI system didn’t allow modifications of auction orders”
So the exchange was (of course) fine with modifying but Goldman’s REDI wasn’t. We proposed to split 18k loss to 9k each because the original order was cancelled altogether. Goldman even tried to negotiate the 9k. First into 50/50 and then an attempt for 75/25. This last attempt would have saved Goldman 2250 EUR.
5. Short Selling Debacle
We were supposed to check whether we could borrow stock but it didn’t.
Goldman allowed this for a month until the exchange authorities noticed. Instead of working out on Goldman’s side how this could have happened (We didn’t get instructed properly), we got penalized by not being able to trade for two weeks. The responsible Goldman employee called it in an internal mail: “[Your company]’s short selling debacle”. The context showed that he blamed us and that we needed to get punished.
B. Sub-standard systems
1. The LSE Auction
Above is shown how London IOB is impossible to trade in the opening. Well, for London Stock Exchange Goldman only allow orders if you’re willing to enter them close enough to the best bid or best offer but that’s a problem in an auction. Example: A stock worth 50 has a crossed best bid and offer of 85-25 as is comon in auctions. The Goldman customer can only enter bids close to 85 and offers close to 25, although the exchange allows any price. A year ago a Goldman employee said, when asked when they were going to change this, that it’s “Not likely to be soon”.
2. Minimum Order size
Goldman does not allow orders of sizes smaller than a certain number. So if you have a position and you hedge out of it but you have a small size left, you have to call or email Goldman to allow this final trade. Why? Nobody knows. But it’s not good for automated trading.
3. Stock Universum
Many stocks are not configured. Of course new listings need to be able to trade on the first day. Not at Goldman. One of your empleyees writes:
“we would like you to group all new product set-ups and suspend requests into a single request that you send to us twice a week? i.e. on a Monday and a Wednesday you send all requests in 1 go.”
4. Ticksizes
Some are manually configured. But wrong.
Kind regards,
——-
Doing God’s work – Fucken Vampire Squid.
Why don’t they shutdown this shitty clearing operation, borrow more free money from the Fed and buy some treasuries for some easy pnl. Beats the shit out of trying to get a bunch of moving parts to work together.
I am a bit surprised at ABN and KBC being mentioned over Fortis.
Doesn’t the entire MM industry in Amsterdam, London, Chicago, HK, Sydney clear through Fortis ?
ABN = Fortis.
Pull your head out of your ass.
I hear Lehman Brothers also have a good offering.
I heard they are selling long term vol way under sheets. Sounds like an arb.
I heard All Options will start a Clearing business.
I hear LC will start a Cleaning business.
I’m sorry, but we have had very similar experiences (and worse!) with Fortis / ABN. They also do not give a shit about their clients and arrogance rules at ABN since they know they are the only one.
I’ve had experience with Fortis/ABN and KBC for years and never had any problems of this kind of magnitude. Yes, they can be a little slow sometimes or a little bit silly – but the clearing never employ the smartest guys in the room. ABN and KBC are both good and reliable imho.
GS is not the only place that screws this up every fkn time!
“Of course new listings need to be able to trade on the first day.”
It’s like every new listing is a surprise, and is setup by someone who’s never done it before…
Wall Street conventional wisdom holds that a sterling reputation is crucial to winning business and keeping clients. Goldman Sachs Group Inc. (GS) may be the exception.
http://www.bloomberg.com/news/2011-05-12/goldman-sachs-viewed-unfavorably-by-54-in-poll-showing-no-damage-to-firm.html
Gee ABN the nationalized parthanon of Brussels is your answer to Goldman. They are not even in the same league. If Goldman is this bad, the others are in the depth of hell then.
‘Why don’t they shutdown this shitty clearing operation, borrow more free money from the Fed and buy some treasuries for some easy pnl.’
what if there is mtm losses on those treasuries and fed closes out the lending window ?
‘Doesn’t the entire MM industry in Amsterdam, London, Chicago, HK, Sydney clear through Fortis ?’
strong agreer,
‘ABN = Fortis.
Pull your head out of your ass.’
isnt it Fortis = ABN ?
‘I hear Lehman Brothers also have a good offering.’
yah they might be offering 25c to Paulson for their defaulted bonds which he brought for 13c, another billion, what a legend,
‘I’m sorry, but we have had very similar experiences (and worse!) with Fortis / ABN. They also do not give a shit about their clients and arrogance rules at ABN since they know they are the only one.’
put yourself in clearing person’s shoes – > you are underpaid, your clients are minting all the bonuses, you have no promotion or any other incentive, why would you give a shit when some small dick trader starts shouting at you for not clearing his pipe .. trader can fucking shag himself and fuck off ..
‘It’s like every new listing is a surprise, and is setup by someone who’s never done it before…’
the clearing people are not paid enough and they dont mind quitting and leaving their pointless job,
‘Wall Street conventional wisdom holds that a sterling reputation is crucial to winning business and keeping clients. Goldman Sachs Group Inc. (GS) may be the exception.’
dont get swayed with stupid polls, GS of course JPM both remain exceptional franchises, much ahead compared to others on street, the talent is deep and pipeline is extremely strong, short term negative view of franchise is just that, short term .. investors get burnt after every bubble/recession and they still forget and get burnt yet again few years later .. what does it tell you .. short term .. memories on wall street ..
‘Gee ABN the nationalized parthanon of Brussels is your answer to Goldman. They are not even in the same league. If Goldman is this bad, the others are in the depth of hell then.’
you are moron, comparison is not GS vs ABN, the comparison is GS Clearing vs ABN Clearing .. both places have 2nd tier people who get no year end incentive bonuses .. they are lot similar than if you compare GS FO vs ABN FO ..
As an ex-employee of GS, the responses you are getting from GS are norm. Two things you need to bare in mind:
1. At GS, your revenue counts for something.
2. They believe in ‘pushing back’ and splitting the cost!
If you are a smallish client, you don’t have a hope in hell of getting them to wear a loss, unless you can prove their fault (which isn’t always easy as they have the computer logs etc and you don’t). I have even witness them actually telling clients to find other broker because they deemed them to be unprofitable (given the amount of resources they were consuming).
Only thing I can suggest is to have multiple brokerage relationships and force them to play ball or go else where. Knowning Rob Crane and his mob, I’d be surprised if they stop you from walking!
Good luck….
perfectly logical, GS are street smart, if client revenue < client attributed cost, the cliently will be pushed off eventually .. GS is not running charity ..
the fact that other banks might be doing client revenue client revenue > client attributed cost .. simple and street smart ..
**perfectly logical, GS are street smart, if client revenue < client attributed cost, the cliently will be pushed off eventually .. GS is not running charity ..
the fact that other banks might be doing client revenue client revenue > client attributed cost .. simple and street smart ..
**the fact that other banks might be doing client revenue client revenue > client attributed cost .. simple and street smart ..
*the fact that other banks might be doing client revenue client revenue > client attributed cost .. simple and street smart ..
the fact that other banks might be doing client revenue less than client attributed cost and probably thats why client is complainting about GS shows that it doesnt take to be too much to be as smart as GS, simple – > client revenue more than client attributed cost .. simple and street smart ..
the simple and smart fact that other banks might not be doing client attributed > client revenue cost .. smart and simple street ..
Looks like another clearing screw up.
…
The issue here is that GS has shitty tech systems along with a culture of *alleged* dick swinging he-man model bangers .. in clearing hahaha.
That’s why the service is bad imo.
Save $1 on tech, then employ arrogant asshole wannabes to dispute the failures.
Keep bragging about you GS job little clearing man.
http://www.bloomberg.com/video/69713392/
‘The issue here is that GS has shitty tech systems along with a culture of *alleged* dick swinging he-man model bangers .. in clearing hahaha.
That’s why the service is bad imo.
Save $1 on tech, then employ arrogant asshole wannabes to dispute the failures.’
the whole street has bad shitty systems, trust .. one of them might be least shitty, but its shitty none the less .. and sitting on blog, its fucking easy to recommend spending 1$ more and employing humble dispute resolution .. but becoming GS partner and then getting this implemented is whole another deal .. grow up to real world with real organizations ..
‘http://www.bloomberg.com/video/69713392/’
GS is not being unfairly singled out, all the banks are in same shitty spot with regulators .. the only difference being they are not GS and so nobody has high expectations of them ..
as for investing in financials, thats just plain stupid .. there was huge recession/downtick and financials led it, they of course popped back from ultra lows, but thats it .. they are not coming back to any new highs after this .. this happened with tech companies after 2000 and with energy companies back in 80s and with conglomerates back in 70s .. financials are going to be whitch-hunted and the cloudy overhang on them is not going away .. behavioral finance is extremely important in long term trends on asset prices ..
The guy has some valid complaints but overall I think he is a whiner. Somehow all the errors always cost them 10-20K euro. They must be some big ass awesome traders that never have a loss. I’ve love for one of these guys to come out and say “Hey, you f*x*d up my fill but I lost money”.
They also rely on Redi – what a piece of Shite. I highly doubt any decent sized MM is using the Goldman/Redi combo.
MM and clearing – aren’t Timber Hill, BNP and SocGen self clearing in most places, Merrill’s got their foot in the picture for some of the other big MM’s, and a couple of the banks are trying to muscle into the space as well. ABN/KBC ain’t the total monopoly outside of the clogyy universe.
mean to say “Hey, you f*x*d up my fill but I would have lost money – so no harm but fix your damn system”.
Why doesn’t anyone mention the Newedge / Fimat clowns?
Jack can you publish a list of all the market makers and who they use for clearing? I.e
1. Optiver – ABN AMRO and GS,
2. All Options – KBC
etc
ABN is silly sometimes, but not quite as bad as GS if the email is true.
‘Why doesn’t anyone mention the Newedge / Fimat clowns?’
i spoke to a RM/Broker at Newedge, 4 years in the firm, 100k gbp base and 100k gbp bonus, all cash, he felt that they are making money since they dont have internal prop desk front running the clients orders,
‘Jack can you publish a list of all the market makers and who they use for clearing? I.e’
why ? are you a phd researcher publishing broker/clearing agent trends in the industry ?
‘ABN is silly sometimes, but not quite as bad as GS if the email is true.’
email is true but its missing the context and its missing the GS’s side of story, so get real and know how to interpret when some small dick trader comes complaining ..
Een particulier koopt op NYSE-Amsterdam 120 calls op 0.05 (in dit geval via Binck)
investering: €600
transactiekstn: €348
de koers loopt op, hij besluit te verkopen op 0.11
opbrengst: €1320 (120×0.11×100)
transactiekstn: €348
BrutoRendement: €720 120%
NettoRendement: € 24 4%
Totaal Transactiekosten: €696
man this was posted 2 years ago too .. everyone knows this ..
so, where’s the solution?
when is Euronext going to lower, and when is Binck going to €1,70 the contract?!
like many more pressing things in the world, and there is no solution for them too; grow up ..
right …
so you’re like the man that is still totally fine with paying pre-internet prices for airplane-tickets?!
something has to change!
Why did Liquid shut down or at least significantly reduce some of their desks in London (shutdown of ETF and algo desk, strong reduction of the options desk)? I guess they could never or not any more deliver the returns they were supposed to…
‘so you’re like the man that is still totally fine with paying pre-internet prices for airplane-tickets?!’
no i wait for players like southwest and ryanair to come in or i take the train or i take the ship or i take the car or i dont travel at all .. and if i feel like wasting money, i sometime do pay up the overexpensive airplane tickets … sometimes u just do ..
so just grow up ..
‘Why did Liquid shut down ‘
ROE for the biz being lower than cost of capital etc .. but it be nice to have some insider color rather than the obv broad answer .. anyone ?
‘something has to change!’
greece is prime eg of how long you can kick the can down and maintain status quo !
i heard liquid arent going as well on the stoxx anymore. they used to print like 100mio eur, now more like 20
C’mon guys. Really, who gives a flying fuck about the quiality of retail clearing operations? GS certainly doesn’t. Retail doesn’t have much choice, does it?!
Systems, systems, systems. Liquid didn’t invest in systems. And the groups that did have good systems (i.e. algo) do not share them with the other desks within the company because that group was on its own profit deal. The same for all the other groups. That gives rise to lack of cooperative ethos and a poor organisational structure whereby the IT guys work according to Chris’s edicts, which change from day to day.
Over the time, the good people who are unable to make money due to lack of investment leave, and also the good people who DO make money leave due to being ripped off on bonus day – leaving the dross behind.
But I thought that Liquid would pay a percentage of P&L and not fuck traders on their bonus – the guys who made 100 million in SX5E got 30 million in bonus. No wait, maybe that was only propaganda by C&G or one of their muppets.
‘And the groups that did have good systems (i.e. algo) do not share them with the other desks within the company’
i think the algo team came from RBS enmasse, so a profit share seems expected setup
‘That gives rise to lack of cooperative ethos and a poor organisational structure’
optiver strives for one company one team, being european socialism of that nature is easy, liquid being british/capitalist, the lack of company wide spirit is not surprising.. its all about your own P&L ..
you don’t believe the 100 million do you? the company’s net result was 12 million gbp (2008). doesn’t rhyme, unless they bled heavily elsewhere.
‘100 million in SX5E got 30 million in bonus’
the bonuses cant be linear .. the costs are comparatively fixed and so payout should be like 30% for okay year, 45% for great year and 60% for exceptional year
100m on sx5e was correct. Those guys long gone
unlikely to be repeated….
Liquid did bleed a lot in single stocks (VW for example) and with their dispersion crap they made a signficant amout of their profit in SX5E. So it was only fair that the SX5E guys paid for the losses of single stock guys. In the end it was a company decision to set up / risk manage the dipersion positions. Let´s not forget that Chris paid himself more than 5 million in salary alone. It is ridiculous to suggest that if 12 million was the net result of the company and 100 million was the gross result of the SX5E guys that consequently the bonus for the traders on the SX5E desk must have been tens of millions of pounds.
no the 12m implies that the 100m was probably inflated
100m on ESX in 2007/08 is probably not inflated
100m by simply marketmaking, or on directional movements threw gained delta’s by marketmaking?
how old are you .. no actually how stupid are you .. its never pure marketmaking ever .. no actually there is .. at ICAP .. at BGC ..
New topic please, the report for the Ondernemingskamer (Van Der Moolen) is out.
“Van den Berg heeft de ontwikkeling van Online Trader vanaf het begin in zijn portefeuille gehad. Geconstateerd kan worden dat hij niet in staat is gebleken het project tot een succes te maken en dat de beslissing ermee te stoppen VOOR maar niet door hem is genomen. ”
Goed gedaan jongen. Hoe gaan de zaken nu?
there were whole number of stupid people at VDM, get over it,
Shut up if you do not contribute anything worthwhile. Whoever is interested can find a lot interesting facts in the 250 page report on the veb webpage.
Marco van den Berg is a reasonable and reliable guy. True, onlinetrader was a fiasco – but tell that to CEO RDD and you’re out.
http://veb.net/content/Bestanden/acties/VDM/Verslagvanbevindingentotal.pdf
‘Shut up if you do not contribute anything worthwhile. Whoever is interested can find a lot interesting facts in the 250 page report on the veb webpage.’
you are contributing fuck all, thanks,
‘http://veb.net/content/Bestanden/acties/VDM/Verslagvanbevindingentotal.pdf’
249 pages of dutch document, anyone feel like reading it and writing over intersting facts here ?
Page 63: VDM paid a small German bank (despite not having any positions there) to receive tax vouchers for positions that were held by KBC (VDM’s clearer). These vouchers were then used to collect 30 million euros from German tax authorities. This was called “dividendarbitrage”. How’s that for interesting facts?
I liked the part about Egbert using Frank Vogel’s vacation home then cancelling 2.3 million euros of debt (owed by GSFS to VDM). Trained by the best: RDD.
It doesnt talk about Egbert using VDM’s trading book to start dummy operation Alphabay and then shuttering it down prematurely to steal 3 million euros on the trading book discount ?
7:45pm … only briefly. In fact, they try to make you believe that Egbert’s bid for the VDM positions was better than other bids. In my opinion they also make the mistake of praising Linda for her integrity as if she didn’t have a hand in the downfall, the tax stuff etc. But for the most part they do a good job of criticizing Richard, Hans, Egbert, Vogel, etc.
And Linda is identified as the whistleblower within VDM (juli 2009). (not a big surprise, but Zwart/Paardekooper had tried to keep her anynomous).
yaah maate, you gaat it .. how about another fosters eh ..
linda moos now has a parttime job working for the liquidators
Question – If a company makes a surprise announcment that it’ll increase the divi payout ratio from 40% – 50% hence the div will go up what effect will this have on the stock price and option price?
if payout is being raised, it signals that company cant find enough areas to invest or its like a commodity company enjoying a windfall from exceptional cashflow and so it doesnt mind sharing the commodity investors who brought their comapny shares .. so its not an easy to say if stock goes up or down .. in apple’s case, payout sounds good, in glencore’s case, payout sounds bad ..
needless to say, there are other interpretations too,
definitely. here one other interpretation: it could say next to nothing about the state of the company.
@ May 19th, 2011 at 9:59 am
While there are multiple explanations for the unexpected increase in dividend, and also multiple ways for investors to interpret it, one thing is for sure. After the ex-div date, the share price will drop by the amount of gross dividend. As a consequence, the intrinsic value of calls (puts) goes down (up) on that day. As this is certain as of the moment the announcement is made; the expectancy value of calls (puts) with an expiration date later then the ex-div date should go down (up)accordingly. Amirite?
It may also mean that they have very disappointing earnings, and are trying to appease shareholders by increasing the payout ratio so the dividend received stays equal. Most investors prefer real dividend over “home made” dividends, due to issues with self control and mental accounting. This way the company could try to negate a large drop in share price after announcement of lower earnings.
‘If a company makes a surprise announcment that it’ll increase the divi payout ratio from 40% – 50% hence the div will go up’
in western hemisphere there is huge negative stigma on absolute dividend cuts .. most dividends are absolute dividend.. so looking at higher payout ratio, its signifying earnings are likely to be stable and consistent, dividend is being raised to share cashflow while enough is still there for capex/r&d .. sounds good for stock price and ex-div call option value .. also given the company was probably in a position to raise dividend, the option trader shouldnt have been trading div/call option at 40% payout .. one time bonus dividend are the worst and option trader should be very careful of being caught short div position for companies like msft/apple sitting on huge cash pile and in position to hit the div button ..
I am at a loss as to how the issues highlighted are clearing problems? Surely these all relate to DMA services?
who cares?
If you’re criticizing a service I would assume you should a) know what the service in question covers; AND b) be able to back the claim up with relevant facts.
But if you “don’t care” maybe you should spend time commenting on things you DO care about.
All right buddy, no need to get worked up so much .. didn’t know goldman redi was so close to your heart .. will comment no more, since nobody really cares ..