As Goldman Embraces Automation, The Experts FROM THE World Are Threatened Even
At its height back in 2000, the U.S. Goldman Sachs’s NY headquarters utilized 600 traders, buying and selling stock on the purchases of the investment bank or investment company’s large clients. Today there are just two equity traders left. Automated trading programs took over all of those other ongoing work, supported by 200 computer engineers. Marty Chavez, the company’s deputy chief financial officer and former chief information officer, described all this to attendees at a symposium on computing’s impact on economic activity kept by Harvard’s Institute for Applied Computational Science last month. Today, almost 45 percent of the revenue from cash equities trading originates from electronic trades, according to Coalition, a U.K.
In addition to back-office clerical workers, on Wall Street machines are replacing a lot of paid people highly, too. 500,000 in bonus and salary, regarding to Coalition. Seventy-five percent of Wall Street compensation goes to these highly paid “front office” employees, says Amrit Shahani, head of research at Coalition. For the highly paid who stay, there’s a growing income pass on that mirrors the broader overall economy, says Babson College teacher Tom Davenport.
“The pay of the average managing director at Goldman will most likely get even bigger, as there are fewer lower-level visitors to share the profits with,” he says. Now more technical areas of trading like currencies and credit, that are not traded on the stock market like the brand new York Stock Exchange but instead through less-transparent networks of investors, are coming in for more automation as well.
To implement these trades, algorithms are being designed to emulate as as it can be what a human investor would do carefully, explains Coalition’s Shahani. Goldman Sachs has already begun to automate currency trading, and has found that four traders can be replaced by one computer engineer consistently, Chavez said at the Harvard meeting. Some 9,000 people, about one-third of Goldman’s staff, are computer technicians. Next, Chavez said, would be the automation of investment banking tasks, work that traditionally has been centered on individual skills like salesmanship and building human relationships.
Though those “rainmakers” won’t be changed entirely, Goldman has recently mapped 146 specific steps taken in any initial open public offering of stock, and many are “begging to be computerized,” he said. Reducing the number of investment bankers would be a great cost savings for the firm. 700,000 a year, according to Coalition, and in a good year they can earn far more.
Chavez himself can be an exemplory case of the rising role of technology at Goldman Sachs. It’s his expertise in risk which makes him suitable for the task of CFO, a role more typically kept by accountants, Chavez told experts on a recently available Goldman Sachs cash flow call. “Everything we do is underpinned by mathematics and a whole great deal of software, in January ” he informed the Harvard audience. Goldman’s new consumer lending platform, Marcus, aimed at consolidation of credit card balances, is run by software entirely, without human intervention, Chavez said. It had been nurtured like a little startup within the firm and launched in only a year, he said. It’s a model Goldman is continuing, housing groups in “bubbles,” some on the now-empty trading spaces in Goldman’s New York headquarters: “Those 600 traders, there is a complete lot of space where they used to sit,” he said.
You’re really not heading to be able to make any real cash until you have handshake agreements, and see eye-to-eye.” That basically seems kind of quant now. Even us as a business doing … We have a few several hundred customers, and most of them we’ve never met. We only need calls with. I believe just getting the digital world of collaboration online does make that easier.
Jason Hollands, Tilney Bestinvest,
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