An I-Bank Slows Down One ETF Biz But Amps Up Another
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Tuesday, July 25, 2017

An I-Bank Slows Down One ETF Biz But Amps Up Another

An investment banking giant may be pulling back from the ETF industry on the one hand even as it grows its ETF business on the other.

Goldman Sachs [profile] "is scaling back its role as a top lead market market (LMM) for ETFs", Trevor Hunnicutt of Reuters reports. Yet "Goldman continues to make issuing its own ETFs through its asset management unit a priority," the wire service notes. Goldman's ETFs have about $5.3 billion in AUM and counting as of July 21, estimates.

"They have largely stepped out of the LMM business," Bill Belden, head of ETF business development for Guggenheim Investments, tells Reuters.

The lead market maker business at Goldman traces back at least as far as 2000, Reuters notes, when Goldman bought Spear Leeds & Kellog, lead market maker for the original ETF (SPY) in the 1990s. Yet Goldman's LMM presence has fallen recently by more than 50 percent on at least one big exchange. At NYSE Arca, the exchange with the most ETF listings, Goldman is now lead market maker for 178, down from 380 last year, the wire service notes. The wire service points to IMC BV and Jane Street Group picking up some of Goldman's lead market maker slack.

Reuters muses that capital requirements imposed by regulators put big banks like Goldman "at a disadvantage when it comes to costs in an already low-margin business," ETF lead market making. The lead market maker business is like "scraping fractions of pennies all day", an unnamed source tells the wire services.

Douglas Yones, head of ETFs for the NYSE, tells Reuters that while some lead market makers pull back, "it has opened the door for many more firms to enter the marketplace with positive results."

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