Goldman lines up for revolution in electronic corporate bond trading

Earlier this year, Gary Cohn, Chief Operating Officer at Goldman Sachs called for an electronic revolution in the trading of fixed income products. Now the bank is practising what its COO preaches, by introducing a computer program that supports the trading of corporate bonds on to the Bloomberg platform.

Electronic trading has been common in equities and government bonds for some time, but the corporate bond market was seen as one of the last vestiges of the older way of doing things. 

Many argued that because of its complexities, the corporate bond market may never go the way of exclusive electronic trading - but AI is advancing, practises that were once considered solely relevant to the domain of human interaction are being swept up in the new revolution for automation.

Even so, Goldman Sachs has taken a softly softly approach. The investment bank has been running its Goldman Sachs Algorithm - GSA - on some trading systems for a year, but Bloomberg is big time, and the move represents a sharp escalation in the promotion of the program. At the moment, GSA is used for trades worth less than US $1 million, it is thought that the bank is honing the system, as it begins to gradually ramp up its application. 

The FT quoted Matt Brill, a Senior Portfolio Manager at Invesco as saying: "My guess is that they're (Goldman) trying to perfect the algorithm." It is thought that the Goldman Sachs system can support the trading of between $75 million and $100 million of corporate bonds every day - revenue in corporate bond trading was $2.9 billion in Q1, according to the FT - although this represented a sharp fall from five years ago. 

Earlier this year, Gary Cohn said: "While electronification has been unfolding in equities for some time, we have also seen an electronic evolution across certain FICC products, with the regulations helping to accelerate this shift. In the future, we expect fewer voice trades and more automatic pricing and execution."