The new trading platform will be fully owned by Goldman, but act as a standalone business within the bank. It will be run on technology provided by the IT services division of NYSE Euronext, the exchanges operator. The development is a sign that the lines are blurring between exchanges and their biggest customers. Regulation, fragmentation of trading across multiple types of venues and intense competition is forcing exchanges and banks to work together.

Last week the European Commission signalled a sweeping overhaul of the way trading works in Europe, proposing revisions to the Markets in Financial Instruments Directive (MiFID). These would see banks and brokers that run their own private trading systems – known as “crossing networks” – reconstituted as more formal trading platforms to promote greater price transparency. 

“We have built a franchise that has a substantial amount of liquidity and some of this will be able to interact with the multilateral trading facility. That will generate additional liquidity for our clients and other participants,” said Brad Hunt, managing director of Goldman Sachs’s electronic trading business. The move by Goldman makes it the third bank to convert its crossing network, known as Sigma X, into such a platform, after Nomura and UBS.

Trades done on Sigma X will take place on technology houses in a vast data centre that NYSE Euronext built in Basildon, outside London, set up to offer “co-location” services to high-frequency and other traders. Under co-location, traders place their automated trading systems only a few metres away from the exchange’s trading system to shave off microseconds from trading times.
Goldman said by separating the governance and management of Sigma X it would ensure it is free from conflict between principal and agency executions.

The launch is subject to approval from the UK’s Financial Services Authority but is expected to be launched in the second quarter of 2011.