Goldman Sachs replaced 600 traders with 200 programmers
Goldman Sachs headquarters building in Lower Manhattan.
Investment bank Goldman Sachs (in financial circles this giant agglomerate is simply called Firma, the Russian representative office is Goldman Sachs) is engaged in investment banking, investment management, underwriting and a huge number of other services. It is difficult to find an area in which Firma has no stake: it was engaged in the initial placement of Rosneft shares, owns almost a million Tesla shares, etc.
In the US, there are no profitable foreign currency deposits and high-yield foreign currency government bonds like ours, so the population usually tries to save from inflation by buying securities. Alternatively, you can give money to the management of an investment or pension fund. Theoretically, professional management of financial assets allows you to quickly increase capital or save money, depending on what task is put before the manager. The only problem is that this “laying” between the investor and the financial market does not guarantee any profit, but it will never remain at a loss.
At the peak of its success in the 2000s, the trading division of Goldman Sachs New York headquarters (in the photo) contained 600 traders. Each served a major customer. Today, their work is almost completely automated: work remainsonly two securities traders . All the work is done by algorithmic trading programs, which are serviced by 200 highly qualified programmers.
Marty Chavez, deputy CFO and former director of information technology at Goldman Sachs, spoke about upgrading the technical infrastructure. He spoke at the Symposium on Money, Data, and Algorithms: Computational Economics on the future of applied informatics. The symposium was held at the Institute of Applied Computational Sciences at Harvard University in January 2017.
The financier acknowledged that traditional business models are a thing of the past. “Everything we do is now supported by math and software,” said Marty Chavez. He compared the modern financial empire Goldman Sachs with Google. They really have a lot in common now. For example, 33% of Goldman Sachs employees are software developers. The company employs 9,000 programmers. Another question is which company decides to find the most talented developer: Google or Goldman Sachs. Perhaps, in a sense, they even compete in the labor market, because they take the best to themselves.
At the annual symposium on the application of computational methods in the economy gathered hundreds of programmers, scientists and businessmen of the United States. This year there were interesting reports, including on the use of the blockchain in the financial industry: how Bitcoin and the block chain work, and why the transition to this system is a “return to the roots”, to the original decentralized idea of money as they thought initially, when there were no banks yet. In ancient times, not a single merchant could imagine that a third party could intervene in a transaction, somehow freeze money and prevent it. But this is exactly what is happening now with ordinary cashless payments - intermediaries represented by banks can freeze an account or cancel a transaction.
Blockchain technologies can be very useful in the financial industry, saysspeaker Aviv Zohar from the Hebrew University of Jerusalem. He said that now a huge amount of innovation happens with altcoins, some crazy and amazing ideas are born and tested there. For the needs of the banking industry, specialists are developing more advanced protocols for working with the blockchain, which are devoid of some of the disadvantages of Bitcoin and altcoins. For example, the SPECTER protocol described in the scientific work of Lewenberg and Sompolinski 2016.
The financial industry is carefully eyeing such interesting concepts from the world of cryptocurrency as evidence with zero disclosure, smart contracts, etc.
Aviv Zohar warned only that when used in the financial field of the program should be carefully checked and tested. He recalled the story of the software in the decentralized autonomous organization The DAO. A few weeks after the launch of The DAO, the hackers found a simple bug that allows you to transfer funds without canceling the account - and removed tens of millions of dollars from the Etherium system.
Bug in DAO software
For this reason, Goldman Sachs and other investment banks invite only the best programmers. If traders' mistakes can lead to small financial losses, then an error in a computer trading program can cause much more damage.
The example of Goldman Sachs is followed by other investment companies that introduce algorithmic trading and replace traders with programmers. According to Coalition statistics , now almost 45% of the trade takes place electronically, without the direct participation of people.
In addition to improving efficiency, this allows companies to get rid of unnecessary highly paid staff, because in the largest investment banks, traders earn an average of $ 42,000 a month in salaries and bonuses. Obviously, this money is withdrawn from the profits of investors, including from the money of ordinary people who invest their earned dollars in investment funds in order to save their savings for old age. And in Goldman Sachs, traders ’salaries were even higher.
Computer programs are designed in such a way as to maximally repeat the logic and strategies of effective human traders, only these actions are performed an order of magnitude faster. And the program will not take millions of dollars in commission.
Now Goldman Sachs is engaged in automation of other elements of its activity. For example, 146 specific steps have already been formalized that need to be made to conduct a public offering of company shares, and many simply “beg to be automated”, said Marty Chavez of the Firm.
By the way, recently Goldman Sachs has opened a new service for ordinary people: a fully automatic consumer lending platform Marcus. Interestingly, this platform was raised like a startup by one of the groups Goldman Sachs sheltered at its headquarters in New York. After the dismissal of 600 traders, a lot of free space appeared there.