The Latest on Goldman Sachs's Open-Source Trading Floor
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York.
What is Goldman Sachs opening up to developers and why does it matter?
Goldman Sachs is about to throw open the doors and let developers have access to coding it uses to set the prices of things like derivatives and assess risk. We'll explain in a moment. First, these money and market stories you should know. Average mortgage rates have come down to near 4%, and that has sparked a boom of sorts refinancing. In fact, the Mortgage Bankers Association says the mortgage application volume jumped 18% last week from a week earlier. But many in the industry feel if you're looking to refinance, you should strike while the iron is hot. The current low mortgage rates were just as low back in January of last year and could cycle upward all over again. And check out Wall Street Journal Middle Sea columnist Scott McCartney's newest piece that focuses on whether you should buy travel insurance before taking a trip.
McCartney says that while signing up for travel insurance might provide peace of mind for passengers, it turns out travel insurers write a lot of gotchas in most policies. especially, as he says, the inexpensive insurance sold through airlines and online travel agencies. Scott says many travelers find the coverage they thought they had really doesn't cover them at all, or the coverage is redundant as airlines will reimburse costs, and some situations and credit cards offer some forms of travel insurance themselves.
What was SecDB and how did it power Goldman Sachs' trading operations?
See Scott's full column at WSJ.com or the WSJ app.
A big bank's trading engine and proprietary data that would determine how much a derivative should cost used to be coveted information that could make traders a lot of money. Well, now in the case of Goldman Sachs, that information is going to be available to people outside the bank. And Wall Street Journal reporter Liz Hoffman is here with some details. So Liz, now Goldman's proprietary trading engine was a real asset at one time. It helped it and traders get through the 2008 financial crisis, as you point out in your story, but the laws have changed.
Yeah. So to really understand the story, you have to go all the way back to the 1990s.
How are current mortgage and travel-insurance trends setting the episode's context?
And Goldman built something they called Securities Database, called SecDB. And it was the brains of the trading operation.
How did post‑2008 rules change Goldman’s ability to profit from proprietary trading?
So would take in data from across the firm about what things were priced at, where there was a lot of activity, what was happening. And that sounds like table stakes now. It was a really big deal then. And so that made Goldman just a ton of money in the 90s and the 2000s. and help them, yes, you're right, stay out of as much trouble as others got into in 2007 and 2008. The world is very different now, so you cannot proprietary trade anymore after the financial crisis. What that means is that Goldman can't take information that it sees from clients and use that to make money itself. So they have this really valuable thing, and there's two ways to make money off something. You can use it and try to make money on yourself, or you can sell it to clients, and they're effectively trying to sell this to clients as a service.
So like a lot of other banks, Goldman has been serving portfolio managers and traders, and now they're serving developers by letting them more or less enter this database and providing them with some code to allow them to have access to some of the data?
So if you're at a hedge fund, you used to have to pick up the phone, you'd call your salesperson at Goldman and say, hey, can you give me a spreadsheet with all of the healthcare companies where, you know, some factor, where the stock's been going up quickly or where they've had a change of management, I want to bet on those companies. And the trader would call over one of his nerds and he would say, can you run this data for me and send it back? And then they would send it back to the client. And that's a really time-intensive and expensive process for Goldman. And it's also just increasingly not how hedge funds want to get that data. So hedge funds and other big asset managers have been hiring coders for themselves.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
What is Goldman Sachs opening up to developers and why does it matter?
0:09–1:28
3
What was SecDB and how did it power Goldman Sachs' trading operations?
1:28–2:14
4
How are current mortgage and travel-insurance trends setting the episode's context?
2:14–2:20
5
How did post‑2008 rules change Goldman’s ability to profit from proprietary trading?
2:20–4:10
6
How will Goldman let external developers access its trading database and code?
4:10–5:27
7
What are the commercial motivations and risks for Goldman in selling access to its data?
5:27–5:38
8
How are other banks responding and what could determine the success of this strategy?
5:38–6:50
Speakers
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