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Goldman Sachs doesn’t clear any option market maker firm in Amsterdam. This is the territorial pissing ground of ABN AMRO and KBC, although the latter is slowly losing ground. Their clients Van der Moolen and All Options have scaled back operations in some degree.

In the area of global delta one trading GS clearing is a major player. One would expect these folks at GS clearing to have superior systems and act accordingly – customer isn’t king. To my surprise I learned only the second qualification applies. According to several clients GS combines arrogance with an astonishing lack of professionalism. The CFTC isn’t very fond of Goldman either.

One of Goldman’s unhappy customers has written a sharp e-mail highlighting some of the most painful issues. Goldman Sachs Clearing has a lot to be modest about – some basic trading functions aren’t possible at all. Participating in the opening rotation of the stocks on the LSE shouldn’t be treated as rocket science. Read below for the text of the original e-mail.

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Dear Sir,

Our company, signed up with you in the summer of 2009 and now, 1.5 years later, I must say that this was a big mistake. I will explain to you why.

Executive summary:

A. The culture at your company has a theme:  “The customer is always to blame”

B. Your systems are sub-standard

Detail:

A. “The customer is always… to blame”

1. The 20k EUR

From an email of your employee on November 4th:

no formal communication was sent [by Goldman] to [your company] about the REDI outage”

and

“There was no communication on the 2 phone calls we had with [your company] after fills were sent back. If raised then we could have resolved this together”

and

“Given the above course of events GS are not obliged to share the loss experienced when closing this position out.”

So your employee writes: even though REDI was out and even though this was not communicated to us, even though we called twice to talk about this position, Goldman feels it is our problem that there was a position due to outage of Goldman’s system REDI.

This trade cost us 20k EUR. After numerous requests this issue has not yet been settled.

2. The Opening Auction in LSE IOB (Goldman Style)

It is not possible for Goldman systems to enter automatic orders in London International Order Book (IOB) before the opening. If you do, your orders get collected and manually entered after the market opened. So if a price was right before the opening and the order was sent then, it gets entered after the opening manually. The stock moved right after the opening and our order got manually entered by your employee 1.5 minutes after the opening at a price that was totally off. And if that’s not enough, yet another order got entered at an off-price.

This cost us 15k EUR and we had to wait 2.5 months to get restitution. It was offered as a sign of good will because:

“The department said [your company] could have known that Goldman treated Londen International Order Book (IOB) orders like this before the opening”

In hindsight, it turned out there was another setting that would just reject London IOB orders before the opening. The advantage of this setting is that you don’t have to be subjected to a manual order long after you entered the details. The disadvantage is that you cannot enter orders before the opening. But hey, they wouldn’t have been able to be executed at market at open anyhow.

3. The On/off button

One of our computers lost power because the On/off button was pressed. Therefore we asked Goldman to have our orders cancelled. We got this email message from your employee:

Sent: Wednesday, February 09, 2011 11:14 AM

Cc: gset-mc

Subject: RE:  open orders

All [your company]’s orders are now cancelled  ( from the FIX line GSIDMA3)”

It turned out that the application at Goldman that was supposed to cancel the orders had crashed and that in real life the orders were still in the market. And some were executed. Goldman kept us out of the market for 1.5 days only to return after we fulfilled their request to state in an email that our(!) problem was solved and that we understood that Goldmans erroneous cancellation procedure was on best effort basis. Of course we did this:

“On Thu, Feb 10, 2011 at 19:45, We <> wrote:

Hello John,

The machine that lost power due to human interference yesterday has been up soon after and I don’t expect this to happen again. As discussed, our cancellation requests with Goldman Sachs are always on Goldman’s best effort basis. Please reconnect us.”

4. If you’re wrong, say you’re not and negotiate

A position had to be closed at the closing auction. Goldman’s system REDI had rejected that order after first accepting it. After a modification on our side it disappeared and therefore did not get executed. The next day’s stockprice gave an 18k loss.

“[Your company] was supposed to know that the REDI system didn’t allow modifications of auction orders”

So the exchange was (of course) fine with modifying but Goldman’s REDI wasn’t. We proposed to split 18k loss to 9k each because the original order was cancelled altogether. Goldman even tried to negotiate the 9k. First into 50/50 and then an attempt for 75/25. This last attempt would have saved Goldman 2250 EUR.

5. Short Selling Debacle

We were supposed to check whether we could borrow stock but it didn’t.

Goldman allowed this for a month until the exchange authorities noticed. Instead of working out on Goldman’s side how this could have happened (We didn’t get instructed properly), we got penalized by not being able to trade for two weeks. The responsible Goldman employee called it in an internal mail: “[Your company]’s short selling debacle”. The context showed that he blamed us and that we needed to get punished.

B. Sub-standard systems

1. The LSE Auction

Above is shown how London IOB is impossible to trade in the opening. Well, for London Stock Exchange Goldman only allow orders if you’re willing to enter them close enough to the best bid or best offer but that’s a problem in an auction. Example: A stock worth 50 has a crossed best bid and offer of 85-25 as is comon in auctions. The Goldman customer can only enter bids close to 85 and offers close to 25, although the exchange allows any price. A year ago a Goldman employee said, when asked when they were going to change this, that it’s “Not likely to be soon”.

2. Minimum Order size

Goldman does not allow orders of sizes smaller than a certain number. So if you have a position and you hedge out of it but you have a small size left, you have to call or email Goldman to allow this final trade. Why? Nobody knows. But it’s not good for automated trading.

3. Stock Universum

Many stocks are not configured. Of course new listings need to be able to trade on the first day. Not at Goldman. One of your empleyees writes:

“we would like you to group all new product set-ups and suspend requests into a single request that you send to us twice a week?  i.e. on a Monday and a Wednesday you send all requests in 1 go.”

4. Ticksizes

Some are manually configured. But wrong.

Kind regards,

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Jack
Jack