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 That plumbing has to do with the technology Goldman uses to route
stock orders to exchanges and private trading pools. The bank has
long been one of the top two stock brokerages in terms of revenue
and customer rankings. But in recent years Goldman's status slipped
in electronic trading because its technology did not keep up with
client demands for ever-faster trades.
Goldman hired the tech-savvy Mahajan to revamp the business in March
2015. Since then, he has hired dozens of technologists and support
staff to elevate Goldman's position in a fast-growing slice of the
market and win back business from its chief competitor, Morgan
Stanley <MS.N>.
"When we look at how Goldman wants to be positioned for the future,
simply put, we want to deliver the best execution quality to our
clients, which is tantamount to saying we need the best technology,"
Mahajan said in an interview.
The 43-year-old was promoted to co-head of global execution services
last month. He began his career at Goldman Sachs in 1996 as a
commodities analyst, but left the bank in 2000 to launch a trading
technology firm with R. Martin Chavez, who is now Goldman's chief
information officer.
Their startup, Kiodex, was bought in 2004 by financial software
maker Sungard, where Mahajan became president of global trading. He
later became chief executive officer of high-frequency firm Allston
Trading before rejoining Goldman as partner, a rank held by around
1.5 percent of Goldman employees.
Mahajan said the idea of fixing the cracks in Goldman's pipes to
make trades move faster and more efficiently find the best liquidity
is what motivated him to return.
"I thought that played right into my skills," he said.
Within the next few months, Goldman's clients will have access to a
new system it acquired when it bought Stockholm-based Pantor
Engineering in October. Goldman retained Pantor's team of about 20
engineers, and hired several managers in Europe and the United
States to tweak and integrate the system into its own.
Later this year, Goldman plans to begin letting its clients use the
bank's proprietary algorithms within that new system, Mahajan said.
That will allow institutional investors who do not have their own
algorithms to tap into quantitative trading strategies.
SYNCHING UP
The work Mahajan has been doing is important for Goldman, whose
electronic stock-trading business appeared to be on shaky ground in
the years leading up to his hire.
The bank's former head of electronic stock trading, Greg Tusar,
announced his departure in February 2013 to join electronic trading
firm Getco. Six months later, Goldman suffered a high-profile
technical trading error, which later resulted in a regulatory fine.
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Goldman's revenue from stock trading became choppy for a range of
reasons including the sale of two businesses, fluctuations in the
value of its own debt, and markets that flipped from sluggish to
volatile in short periods of time.
But analysts and traders at other Wall Street firms have criticized
Goldman's technology for failing to synch up with quantitative hedge
funds and institutional investors that are increasingly adopting
algorithmic trading strategies, which now make up around 10 percent
of U.S. stock volume.
Meanwhile, Morgan Stanley was investing heavily in electronic
trading, and experiencing the opposite results.
Sources inside Goldman say that after Tusar's departure, the bank
focused more on other types of business, like derivatives, financing
hedge fund trades, and buying big chunks of stock from mutual funds,
to keep revenue aloft.
One camp of traders within the stock-trading business felt the bank
should remain focused on more traditional businesses, which came
with fatter margins. Another argued that Goldman had to invest in
new electronic-trading technology and staff to be relevant and
competitive. The latter group, led by Chavez, eventually won out.
Now, Goldman is working to integrate all of its offerings to create
a one-stop shop for clients who want to trade, borrow or hedge
stocks. Its investment in the electronic business is notable because
Goldman and other banks are cutting costs and being very selective
about where to put money to work.
"At a time when people are pulling back or potentially retrenching,
we are stepping on the gas," Mahajan said.
(Reporting by John McCrank; additional reporting by Olivia Oran;
Editing by Lauren Tara LaCapra and Alan Crosby)
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