Chris Skinner's blog

Shaping the future of finance

Why latency is so important (and Goldman wins)

Chris Skinner Author Avatar
by

Great article in this month’s Bloomberg Markets Magazine on High Frequency Trading (HFT) which, according to Tabb Group, has increased from almost nothing to account for 61% of US stock market activity and 70% of individual trades since 2005. The SEC announced it is to review this area of trading last month but the focus of the article is what this means in reality from a broker dealer view.

Working with Ancero, Bloomberg has compiled a list of the best brokers using their global trade execution prices between July 2008 and June 2009. This is anannual review, and shows the impact of HFT upon the brokerage community as Goldman Sachs is the clear winner for brokers handling over $25 billion in trades annually.

According to Ancerno, Goldman is the closest at getting orders filled nearest to the price when the order is received whilst JPMorgan, last year’s #1, has fallen to joint fourth with Barclays Capital, behind Bank of America Merrill Lynch and Morgan Stanley.

The World’s Best Brokers                 Loss in basis points*

#1    Goldman Sachs                                     -27.5
#2    BoA Merrill Lynch                                  -32.7
#3    Morgan Stanley                                     -33.6
#4=  JPMorgan Chase                                    -34.2
#4=  Barclays Capital                                    -34.2
#6    Investment Technology Group (ITG)      -35.6
#7    UBS                                                     -36.3
#8    Deutsche Bank                                     -38.8
#9    Citigroup                                             -39.7
#10  Credit Suisse                                        -41.3

A basis point is 0.01%, so Goldman Sachs' 27.5 = 0.275% or just over quarter of one percent. This means that, for a client who placed an order for 50,000 shares at $10 each with Goldman Sachs, they would get the shares for an average price of $10.275 cents; whilst Bank of America would fill the order at an average price of $10.327 cents; Morgan Stanley at $10.342 cents; and so on.

[Figures represent the difference between the executed stock price and the price when the order was placed for brokerage clients in the four quarters ended on June 30th 2009, according to Ancerno]

Why have Goldmans won?

According to Roger Freeman, an analyst covering brokerage houses and exchanges at Barclays plc, because “they have the most developed and advanced electronic systems” and “can get some of the fastest execution times on trades.”

This is why latency is so critical and illustrates the point well.

For example, per day, the US exchanges averaged trading of 10.4 billion shares daily during the year to June 30 2009, with institutional investors globally paying $28.2 billion in trading commissions compared to $30.7 billion in 2008 and $26 billion in 2007.

Interestingly, the basis point difference varies quite widely by region:

Loss in basis points*        USA     Europe     Asia
Goldman Sachs               -25.4     -32.6     -24.0
JPMorgan Chase             -34.1     -35.8     -31.1

This may be a reflection of the early state of low latency in Europe at that time, and demonstrates why Chi-X has succeeded so fast.

TechnologyCategories
Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

What is the future?

Learn more

Learn more about Chris

About Chris Skinner

The Past, Present And Future Of Banking, Finance And Technology

Fintech expert Chris Skinner: countries need digital transformation to remain competitive

Join me on Linkedin

Follow Me on X!

Hire Chris Skinner for dinners, workshops and more

Learn directly from from one of the most influential people in technology, gain insights from the world's most innovative companies, and build a global network.

Chris’s latest book

Chris Skinner’s ‘Digital For Good’ Book Launch Event – CFTE

Top 50 Global Thought Leaders and Influencers on FinTech 2023

Chris Skinner
Commentator, CEO of The Finanser and best-selling author at The Finanser

Thinkers360 Thought Leader

Contact Me

Global Awards

Lifetime Achievement Award

Global 100 - 2024 Winner

Chris Skinner - Financial Markets Advisor of the Year - The Finanser - UK 2023

Best Financial Markets Advisor of the Year 2023

30 Best Regtech Blogs and Websites 2023

Kids creating the future bank | TEDxAthens

Captain Cake and the Candy Crew

Captain Cake Winner of a Golden Mom’s Choice Award

TWO-TIME WINNER OF A MOM’S CHOICE GOLD AWARD!

Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser