Human traders are being phased out of the stock markets and technology is taking over. This article describes how only three firms are in a position to develop and manage the technology needed to trade and manage all that trading. it talks about all the money the three firms are pouring into technology, their attempts to dominate the markets, and what it means to investors.
Few benefited more from this than Goldman Sachs, which became the most profitable company in Wall Street history under former commodities salesman Lloyd Blankfein, who may step down as chief executive officer as early as this year. Using house money to facilitate bond trades—or principal risk-taking—was far more lucrative than merely acting on clients’ behalf to execute stock orders. In 2009, Goldman traders reaped $33 billion in revenue, two-thirds of it from fixed income.
But constraints brought about by the financial crisis ended the leverage that had fueled the boom. Fixed-income traders felt the brunt of the changes, and in the years since, equities traders —especially those with a technology background—have enjoyed a renaissance. Their rise has touched off a battle for supremacy that’s come down to only three companies: Goldman Sachs, Morgan Stanley, and JPMorgan Chase. These rivals are now locked in a technological arms race to control a $58 billion-a-year industry. As they each jockey for an edge over the other, no one who trades on Wall Street is safe.