secDB – designed for mkt-making and prop trading

GS 2010 annual report said “A particular technological competitive advantage for GS is that GS has only one central risk system.” Presumably, this is a market risk system. Not much credit risk, or  liquidity risk, or counter-party risk.

It’s instructive to compare several major business models
+ prop-trading and principal-investment — maintain positions ==> need secDB
+ dealing and market-making — need to maintain (and hedge) positions ==> probably needs SecDB esp. option/swap market making
+ security lending — holds client’s positions under bank’s name ==> Needs secDB
– brokerage and agency-trading — don’t need to maintain positions by strict definition. In practice I guess they often lend assets to clients and hold client’s positions as collateral. That would need secDB
– asset management — managing client’s money only, so maintain positions on behalf of clients. If you care about the fund manager’s positions, then you need secDB. In addition, I guess managers often co-invest — need secDB
– high-volume, low-margin electronic trading is usually(??) agency trading
+ if there’s a high volume system that needs secDB, I’d guess it’s prop trading similar to hedge funds

Looking into the design of SecDB (dependency graph + OODB), I feel it’s designed for prop desk.

In citigroup, the research department supports prop desk as its #1 user. I guess the market maker desk would be #2.

When GS say “aggregate positions across desks”, I feel it means prop desk + sell-side “house” desks. I think they mean house money i.e. positions under GS own name, not client names. Risk means risk to the bank’s positions, not client’s positions. (No bank will spend so much money to assess risk to clients’ positions.)

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One thought on “secDB – designed for mkt-making and prop trading

  1. This is partially correct. SecDB covers ALL risk at the firm – so any exposure the firm has to products / clients. Further SecDB is a full risk system (i.e. credit, market, liquidity and counter-party). Think of SecDB as two things (1) a database that has information about ever trade available (2) an object oriented language where the objects are specific security instruments.

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