Why Goldman Sachs Jumped Back into Lead Market Making

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Goldman Sachs is retaking the lead.

After an eight-year absence from lead market making, the Wall Street firm has taken on the role for the $35 million CG US Large Growth ETF (CGGG). It’s a shift in strategy for Goldman, which exited the LMM role in hundreds of ETFs it supported back in 2017 to avoid high regulatory and operations costs and focus instead on issuing its own ETFs. With about 500 ETFs having launched in the US so far this year, however, Goldman may see it as the perfect opportunity to make some scratch on the spread as well as support the ETF industry.

“The addition of Goldman Sachs as a market maker is a net positive as these ETFs will need liquidity and orderly trading,” said Todd Rosenbluth, head of research at VettaFi.

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Capital Idea

Capital Group launched the actively managed CGGG at the end of June. Since then, it has taken in roughly $6.4 million in inflows, and its performance has risen about 6%, according to VettaFi data.

Capital Group is excited to have Goldman as the fund’s LMM. “We’re always looking to partner with high-quality liquidity providers and with so much activity and expected growth within the ETF category, it’s great to see Goldman Sachs in the lead market maker role,” Scott Szever, head of ETF product and capital markets at Capital Group, said in a statement.

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Goldman declined to comment.

Make or Break. Market makers play a crucial role in the ETF ecosystem, providing continuous liquidity by being ready to buy or sell shares at any time. In return, they profit from the spread between bid and ask prices, a dynamic that has attracted several major Wall Street players.

Jane Street serves as LMM for more than 800 ETFs across the NYSE Arca, Cboe and Nasdaq, Bloomberg reported. Meanwhile Virtu, Susquehanna and Citadel cover about 1,750 funds combined.

As those numbers suggest, there’s quite a lot of profit in the infrastructure of the ETF industry: In the first quarter of the year, Citadel generated $3.4 billion in trading revenue. Meanwhile, Jane Street was estimated to have garnered more than $7 billion from trading.

No wonder Goldman wants back in.

This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.

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