Why Does Goldman Sachs Need 10 Acres of Trading Floor?

Gari N Corp has a question:

Why do investment banks need such big trading floors? Are we talking about one big floor for everyone, or multiple huge floors? I mean, is it just about creating a collegiate atmosphere? Compliance (avoiding replicating the separate elevators, etc)? Allowing them to share information? If the last, I can's imagine a RMBS CDS trader having much to discuss with, say, the muni desk.

In the case of the new Goldman Sachs headquarters, we're talking about multiple huge floors: six, to be precise, each one 72,000 square feet. That's 432,000 square feet in all, or roughly 10 acres.

Back in April, the WSJ had an article on this very subject. Part of it is, yes, about sharing information, and part of it is simply that there are more traders these days:

At the same time, the recent boom in debt and equity markets has made trading a more profitable business for Wall Street investment banks and has spurred them to hire more traders. The banks are also feeling pressure to put their stock, bond and derivatives traders in a centralized location to make it easier to cater to clients who increasingly want one-stop shopping for their financial services.

But don't discount the importance of good old-fashioned one-upmanship: if Goldman has six 72,000-square-foot trading floors, it's positively embarrassing to boast only a relatively tiny 30,000-square foot floor or two of your own.

And there's also the psychology of big trading floors: although it might be hard to quantify, there is some kind of network effect to a big floor where information just seems to flow invisibly from trader to trader. If you walk onto an enormous trading floor, you can feel an energy which simply doesn't exist on a small desk hidden around a corner somewhere with half a dozen people trading in and out of Brazilian A bonds. It's true that those individuals are unlikely to have much to discuss directly with the muni desk. But it's also true that if you put them all in an enormous, well-lighted space, they might just pick up their game a little bit. And on Wall Street, that tiny sliver of extra margin can mean billions of dollars in profits.