Freitag, 18. September 2009

Stiglitz hinterfragt Goldman Sachs Marktbeherrschung

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Stiglitz Questions Goldman's Size, Potential For Front Running

One month ago Zero Hedge proposed the following questions to Goldman Sachs in response to their vehement denials of HFT abuse:


3. Regarding Physical separation - It is refreshing that Goldman believes in the concept of Chinese walls. Since we are on the topic, would it be possible for Goldman to provide a snapshot of its trading floor and to distinguish where the flow traders and major fixed income and equity account salespeople sit in relation to prop traders and their analysts? We believe Goldman's credibility of a "force for good" would benefit significantly if readers knew that Goldman's prop traders were not constantly within earshot of hearing how many million shares of company X Fidelity may be buying, or how many million notional in CDS of company Y Och-Ziff may be a size buyer of.

Today, question 3 gets broad exposure in an interview in Daily Finance, where none other than former Council of Economic Advisors Chair (where he was succeeded by San Fran Fed's Janet Yellen), and 2001 Nobel Prize Winner in Economics Joseph Stiglitz discusses the implications how Goldman Sachs could potentially be abusing what is affectionately known on Wall Street as Information Asymmetry:
The main problem that Goldman raises is a question of size: 'too big to fail.' In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information. That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that's why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you're going to trade on behalf of others, if you're going to be a commercial bank, you can't engage in certain kinds of risk-taking behavior.

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