Goldman to Shed Floor-Trading Biz? - Analyst Blog

The Goldman Sachs Group, Inc. GS is in talks with IMC Financial Markets to vend its floor-trading business that operates in the New York Stock Exchange (NYSE). However, the company will continue to serve as a brokerage firm providing liquidity electronically for the NYSE-listed stocks.

Based in Amsterdam, IMC (International Marketmakers Combination) Financial Markets operates in over 90 exchanges around the world. Its business segment comprises of financial markets and asset management.

The floor trading business added to Goldman's operations when the company purchased Spear, Leeds & Kellogg, one of the largest trading firms, for $6.5 billion in 2000. Though any official figure has not been revealed, the proposed sale can take place for anything around $30 million, according to market rumors.

Though the deal value does not look impressive, it reflects the current scenario of the floor trading business, also known as ‘designated market-maker.' Under this, a number of brokers facilitate stock trading in exchanges by providing quotes (ask/bid price) for buyers and sellers every business day. Over the years, with the advent of technology, such trading has gained popularity in the electronic medium that facilitates trading with much ease and accuracy, thereby eliminating the need for a human element.

Hence the latest move by Goldman on that front should not come as a surprise. Rather it reflects the fading glory of floor traders who once dominated the markets. Further, we believe the proposed initiative to be a part of Goldman's strategy to offload businesses with declining yields and focus more on profitable ventures.

Others companies that have sold their market making units in the past few years include Bank of America Corp. BAC.   

Goldman currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in this space include GAIN Capital Holdings, Inc. GCAP and Investment Technology Group Inc. ITG. Both stocks carry a Zacks Rank #1 (Strong Buy).