© Reuters. Electronic trading outfits best Wall Street in ETF market-making
- The ETF business is booming, and with it should be a boost to the likes of Goldman Sachs (NYSE:GS) and some peers who used to dominate the lucrative business of ETF market making.
- A combination of tighter regulation (higher capital requirements) and the rise of high-frequency traders have wiped out margins though, and traditional banks are rapidly ceding market share – electronic outfits now account for 83% of ETF market making, up a whopping amount from just 66% a year ago.
- “Goldman Sachs had been looking to exit the business for a while as the rewards didn’t offset the obligations,” write Rachael Evans and Annie Massa at Bloomberg, citing a source close to the matter. The bank has resigned its lead role on more than 300 of the 359 NYSE-listed ETFs it used to assist.
- Banks, though, may get a second chance as worry about excessive concentration in the hands of unregulated firms has the SEC looking to maybe take some action. Credit Suisse (NYSE:CS), for one, has recently boosted the number of ETFs it works with.
- Now read: Credit Suisse’s Muddy Future