Goldman Tightens Golden Handcuffs for a Booming Trading Desk

Some of Goldman Sachs Group Inc.’s most in-demand traders were confronted with a surprising rider before collecting their rewards for 2020.

The firm asked staff in its portfolio-trading group to sign a six-month non-compete clause to get bonuses for the breakout year, making it harder for them to defect to rivals, according to people with knowledge of the matter. While a non-compete of that length is normal for more senior ranks, it’s often half that or less for more junior levels.

As Wall Street prepares for the possibility that 2020’s raucus markets will cool off, trading leaders face the prospect of leaning anew on innovative products that have chalked rapid growth in recent years. Portfolio trading -- in which baskets of securities are bundled -- is especially lucrative. And it’s an area where Goldman has quickly established a dominant position, according to industry watchers.

A company spokeswoman declined to comment.

Top firms have long insisted on non-compete clauses, contending they reduce the ability of defectors to take proprietary information or current business to a new employer. But the policies also have the effect of discouraging departures altogether, cutting traders out of the essential flow of daily market information. Getting benched for half a year makes it all the harder for junior up-and-comers to re-establish themselves once they settle in elsewhere.

Goldman’s policy already was in place for some executives in its fast-growing group but now covers a much larger pool of staff there, one of the people said.

Portfolio trading -- which began in equities and expanded into credit markets -- helps investors buy and sell baskets of securities in seconds. Its increasing adoption as standard trading fare has been enabled by the explosive growth of exchange-traded funds. Many hedge funds facing client redemptions now create lists of securities that match the needs of a given ETF, making it easier for dealers to find eager buyers.

In the past two years, portfolio trading has expanded rapidly in flow credit markets and has been seen as one of the major changes in that industry. Innovations in credit investing -- including portfolio, index and ETF trading -- have brought in new revenue streams that have grown rapidly and will likely remain hot spots for hiring.

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