Pretty much every big bank is now involved in “black box,” proprietary trading – trading client money and their own money from the same platform.
Black box trading is completely legal, but it is still frowned upon because of course the bank stands to benefit off trades against its clients. It isn’t cheating the client as long as they get what they want (they usually do).
But most banks make an effort to separate these two entities anyway (like Barclays, which keeps its prop traders in Philly and its client traders in New York), in order to alleviate any clients’ concerns that the bank might be benefiting from ripping them off.
According to a report from Asset Backed Alert, Goldman Sachs’ doesn’t even try. Their CDO prop trading desks and their CDO client trading desks are right next to each other on the trading floor, and investors are starting to freak out.
They also share the same Managing Director, Jerry Ouderkirk.
It’s all legal, but it plays into the worst sterotypes about Goldman, and the perception that it plays against its clients, rather than work on behalf of them.