Beyond My Ken
SecDB is the main instrument by which Goldman Sachs evaluates risks and analyzes value of securities, commodity contracts, derivatives, structural and OTC instruments. SecDB was developed in the early 1990s for Goldman Sachs unit in charge of raw materials trade. The first serious test of the software took place in 1998, when Long-Term Capital Management hedge fund collapsed due to default in Russia, and the bank was able to monitor their risks. It helped him to see deterioration of the subprime mortgage bonds market in late 2006, to make bets on fall of the housing market, and so on.
SecDB daily calculates prices of about 2.8 million positions. It allows to assess how changes in certain variables affect value of assets, analyze potential trades and monitor risks.
One of the important advantages of this software is an ability to add new tools and connect to SecDB new departments while maintaining a common approach to analyzing and trading.
Until now, Goldman Sachs has jealously guarded SecDB, rejecting offers of competitors, such as Deutsche Bank, to license the software. A former partner of the investment bank recalls the issue was discussed a decade ago about how much money such a license could bring. Gary Cohn, who in 2006 became president of Goldman Sachs, told colleagues then that he would not share the software for even $ 1 billion. And for $ 5 billion? "Maybe", - said Cohn. "It was a huge competitive advantage," - Conh said recently about SecDB.
Recently, however, the bank started to provide customers with free access to a few applications of SecDB, which can be customized to suit one’s needs. New governing rules limited trading risks of banks, and holding large amounts of stocks and bonds on the balance became more expensive. In addition, proliferation of e-commerce has led to a decrease in profit rate of trading divisions of investment banks. "Regulators have undermined this advantage," - said Peter Carr, a former top manager at Morgan Stanley.
New strategy of Goldman Sachs is to attract more customers, who will independently carry out more operations through the bank. "They try to stay ahead, - said Jeffrey Young, Co-Director of Ramius. His company has got access to SecDB through one of the bank's applications. There was a period of instability in the markets, when he needed to constantly keep track on value of derivatives, which he bought from Goldman Sachs. - Instead of stating: "We want to meet needs of customers", they now say "Let's make them happy as possible."
source: wsj.com
SecDB daily calculates prices of about 2.8 million positions. It allows to assess how changes in certain variables affect value of assets, analyze potential trades and monitor risks.
One of the important advantages of this software is an ability to add new tools and connect to SecDB new departments while maintaining a common approach to analyzing and trading.
Until now, Goldman Sachs has jealously guarded SecDB, rejecting offers of competitors, such as Deutsche Bank, to license the software. A former partner of the investment bank recalls the issue was discussed a decade ago about how much money such a license could bring. Gary Cohn, who in 2006 became president of Goldman Sachs, told colleagues then that he would not share the software for even $ 1 billion. And for $ 5 billion? "Maybe", - said Cohn. "It was a huge competitive advantage," - Conh said recently about SecDB.
Recently, however, the bank started to provide customers with free access to a few applications of SecDB, which can be customized to suit one’s needs. New governing rules limited trading risks of banks, and holding large amounts of stocks and bonds on the balance became more expensive. In addition, proliferation of e-commerce has led to a decrease in profit rate of trading divisions of investment banks. "Regulators have undermined this advantage," - said Peter Carr, a former top manager at Morgan Stanley.
New strategy of Goldman Sachs is to attract more customers, who will independently carry out more operations through the bank. "They try to stay ahead, - said Jeffrey Young, Co-Director of Ramius. His company has got access to SecDB through one of the bank's applications. There was a period of instability in the markets, when he needed to constantly keep track on value of derivatives, which he bought from Goldman Sachs. - Instead of stating: "We want to meet needs of customers", they now say "Let's make them happy as possible."
source: wsj.com
