In the maze of subsidiaries that make up Goldman Sachs Group, two in London have nearly identical names: Goldman Sachs International and Goldman Sachs International Bank.
Both trade financial instruments known as derivatives with hedge funds, insurers, governments and other clients.
United States regulators, however, get detailed information only about the derivatives traded by Goldman Sachs International. Thanks to a loophole in laws enacted in response to the financial crisis, trades by Goldman Sachs International Bank don’t have to be reported.
A decade after a financial crisis fueled in part by a tangled web of derivatives, regulators still have an incomplete picture of who holds what in this $600 trillion market.
“It’s a global market, so you really have to have a global set of data,” said Werner Bijkerk, the former head of research at the International Organization of Securities Commissions, an umbrella group for regulators around the world overseeing derivatives markets. “You can start running ‘stress tests’ and see where the weaknesses are. With this kind of patchwork, you will never be able to see that.”
Derivatives are instruments whose values are derived from the prices of other things, like a stock or a barrel of oil or a bundle of mortgages. Originally designed to protect their holders against future risks, they evolved into vehicles that traders used for financial speculation. Unlike stocks, they often aren’t traded over public exchanges, which means the market — and who is exposed to what — is opaque.
