Goldman Sachs Group Inc (GS) Is Exiting Its ETF Market Making Role

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July 25, 2017 9:02am NYSE:GS

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Goldman Sachs Group Inc (NYSE:GSis doing away with its ETF market-making business, amid heated competition from smaller, nimbler firms and onerous regulatory requirements.


Reuters has the exclusive details on the move:

Goldman has told fund providers it is scaling back its role as a top lead market maker (LMM) for ETFs and has already slashed the number of funds it supports in that capacity, according to disclosures, fund managers and other trading firms this month.

Relatively high regulatory and other costs of operating as an LMM prompted the pullback by Goldman, one of the few large banks remaining in that role, some people said.

The move marks a rare retreat for Goldman, which doesn’t usually shy away from competition — particularly against smaller upstarts. However, smaller LMMs have much lower capital requirements than large firms like Goldman Sachs, putting them at a distinct advantage in an already low-margin industry.

LMMs help ETFs trade smoothly, because they provide the needed liquidity as buyers or sellers in thinly-traded funds. Some ETFs can go days without a single trade, so when an investor does want to buy or sell, a market maker must step up to take the other side of the transaction.

Goldman Sachs Group Inc (NYSE:GS) rose $1.82 (+0.83%) in premarket trading Tuesday. Year-to-date, GS has declined -7.53%, versus a 11.70% rise in the benchmark S&P 500 index during the same period.


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