Why Does Goldman Sachs Need 10 Acres of Trading Floor?

Gari N Corp has

a question:

Why do investment banks need such big trading floors? Are we talking about

one big floor for everyone, or multiple huge floors? I mean, is it just about

creating a collegiate atmosphere? Compliance (avoiding replicating the separate

elevators, etc)? Allowing them to share information? If the last, I can’s

imagine a RMBS CDS trader having much to discuss with, say, the muni desk.

In the case of the new Goldman Sachs headquarters, we’re talking about multiple

huge floors: six, to be precise, each one 72,000 square feet. That’s 432,000

square feet in all, or roughly 10 acres.

Back in April, the WSJ had an

article on this very subject. Part of it is, yes, about sharing information,

and part of it is simply that there are more traders these days:

At the same time, the recent boom in debt and equity markets has made trading

a more profitable business for Wall Street investment banks and has spurred

them to hire more traders. The banks are also feeling pressure to put their

stock, bond and derivatives traders in a centralized location to make it easier

to cater to clients who increasingly want one-stop shopping for their financial


But don’t discount the importance of good old-fashioned one-upmanship: if Goldman

has six 72,000-square-foot trading floors, it’s positively embarrassing to boast

only a relatively tiny 30,000-square foot floor or two of your own.

And there’s also the psychology of big trading floors: although it might be

hard to quantify, there is some kind of network effect to a big floor where

information just seems to flow invisibly from trader to trader. If you walk

onto an enormous trading floor, you can feel an energy which simply doesn’t

exist on a small desk hidden around a corner somewhere with half a dozen people

trading in and out of Brazilian A bonds. It’s true that those individuals are

unlikely to have much to discuss directly with the muni desk. But it’s also

true that if you put them all in an enormous, well-lighted space, they might

just pick up their game a little bit. And on Wall Street, that tiny sliver of

extra margin can mean billions of dollars in profits.

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