Last week, two Wall Street behemoths, Bank of America and Goldman Sachs, discussed plans to dismantle market-making units. These moves follow concurrent industry trends among some of the largest global financial institutions to cut riskier or less profitable business units in the face of increased regulatory scrutiny and demanding capital requirements.
Goldman Sachs will sell its New York Stock Exchange (NYSE) market-making unit to IMC Financial Markets. Goldman Sachs, formerly the third largest market maker, will continue to broker trades on the NYSE.
Similarly, Bank of America recently announced plans to dissolve its own market-making unit. Bank of America cited low profit margins and heightened criticism of trading behaviors as motivation for its decision. E*Trade Financial is also among the recent financial institutions to eliminate their roles as designated market makers.
Meanwhile, high frequency trading firms such as IMC, Susquehanna International Group, Virtu Financial and KCG Holdings are assuming the few remaining positions as designated market makers. These firms possess more advanced technology and are able to operate more efficiently on a larger scale, ensuring greater profitability than has been previously experienced by big banks.