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October 1, 2010

Making Sense of the Complex

Goldman's Electronic Trading Head Talks

By James Ramage

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Greg Tusar, head of the Goldman Sachs Electronic Trading business in the Americas, sat with Traders Magazine recently to discuss a number of issues affecting equity trading today. Among the topics addressed were developments in market structure, as well as how algorithms and dark pools are evolving. An industry veteran of 18 years, Tusar offered some insights on the rapidly evolving marketplace.

Greg Tusar

He began by speaking about how order handling and routing-a process not easily understood by clients-has gotten far more complex over the past decade. The solution clients have been requesting is for brokers to make both processes more transparent to institutions, so they can make more informed choices about where to send their orders. Transparency, which Tusar supports, would give clients more confidence in how their orders are handled and where they're routed, he added.


Traders Magazine: Is there skepticism these days from money managers about where their orders are getting done?

Greg Tusar: I think there's a strong desire to understand order routing practices better. I think there's also a desire to understand how order routing practices relate to algorithmic performance.


TM: Could you provide an example of the need to understand the process better?

Tusar: I think order routing practices can be made more understandable and transparent through two primary means. First, by providing clients with reports and real-time information as to where their orders went. Second, with modifications to Rule 606. Rule 606 could be modified to include all of the venues in which a broker searched for liquidity in the process of executing an order. While not client specific, it would generally give clients a sense of the order routing methodology used and the number and nature of venues where orders are executed.


TM: Just like the ICI letter said, they want to know where their order went and where it didn't get executed.

Tusar: Absolutely. We currently provide the venue of execution back to end clients both via FIX and into our REDIPlus front end software. However, if a client is also interested in how and where we sought liquidity, and not just where the order was executed, we can provide that information through separate reports and files.


TM: But clients still have questions?

Tusar: One questions we get is: How do you simultaneously manage fees in the maker-taker world and the optimal placement of limit orders? In addition to the two ways I previously mentioned we can increase transparency, what we proposed in our recent Concept Release response is passing rebates and removal fees back to the end client. This could happen by making the execution price be inclusive of rebates or fees. In the case of retail orders, that would mean that the end customers are the beneficiaries of payment as it would appear in the form of price improvement.