Bringing Commercial Paper Trading Into the Digital Age

ThemeS: Clients | Innovation

In 1985, Goldman Sachs introduces the first-ever computerized commercial paper dealer system, replacing the telephone and increasing the speed and accuracy of commercial paper transactions.

In the high-interest-rate environment of the 1980s, the market for commercial paper (CP) saw rapid growth. For large, creditworthy companies, the short-term financing vehicle was a compelling, lower-cost alternative to long-term funds and bank loans. Over the decade, CP outstanding in the United States grew at an average annual compound rate of about 17 percent.

Goldman Sachs’ role in the CP industry dated back to the firm’s inception and only grew over time. The firm’s very first acquisition, that of Chicago-based Hathaway & Co. in 1932, made Goldman Sachs one of the nation’s largest CP dealers, a position it would enjoy for decades to come.

In 1985, the firm partnered with Manufacturers Hanover Trust to develop a new, electronic service linking Goldman Sachs by computer with both issuers of CP and Manufacturers Hanover, the issuing and paying agent. The new system was designed to reduce paperwork errors and processing time related to CP transactions. With it, Goldman Sachs could transmit details of a CP sale to a client electronically. Once the client verified the details, Manufacturers Hanover would receive notice, also via computer, to process the notes.

The movement to electronic dealing and trading platforms was still nascent, with the New York Stock Exchange only having introduced its computer-enabled SuperDOT trading platform for order placement and execution the prior year. The NASDAQ was just over a decade old. Against this backdrop, Goldman Sachs applied its historic innovativeness to the CP market, leveraging both technology and strong industry partnerships as it sought to enhance operational efficiency in this burgeoning market.