Understanding SecDB: Goldman Sachs’s Most Valued Trading Weapon

ENLARGE

SecDB’s power comes from its universal use throughout Goldman Sachs, its flexibility to add new variables, and its ability to tap into all of Goldman’s data. Photo: European Pressphoto Agency

Goldman Sachs Group Inc. GS -0.16 % created Securities DataBase, or SecDB, to store information on the various new derivatives the firm was churning out in the early 1990s.

SecDB’s uses would soon stretch well beyond its unimaginative name to become the envy of Wall Street.

Accessing it from their computers, traders use the system to track how a position would have performed over the past year, how it might do in the future under different scenarios, and how the holding might alter their broader portfolio. They can also use the system to help determine a price to charge the trade’s counterparty.

But traders aren’t SecDB’s only users. The firm’s risk managers use the system to peer into positions held by a trading desk or business to determine aggregate exposures.

Every Wall Street firm has tools to run each of those functions. But SecDB’s power comes from its universal use throughout the firm, its flexibility to add new variables or new sources of information, and its ability to tap into all of Goldman’s data.

Lloyd Blankfein, now chairman and chief executive of Goldman, ran the foreign-exchange business where the system made its debut. His ascent ensured that SecDB would spread throughout the firm, overtaking other systems designed to price securities or manage risks.

“You have to have the bank wired up in a certain way,” said Kerim Derhalli, former head of equity trading at Deutsche Bank AG DB 0.41 % . “You need the data to do that.”

Mr. Derhalli recalled being at a 2010 meeting when he spotted his counterpart from Goldman receiving frequent updates on his phone showing how his desk’s holdings were faring.

“I’d spent 30 years in banking and had never come across that,” he said, adding that he realized it couldn’t easily be replicated.

“It went through a lot of trials and tribulations,” said Michael Dubno, a former Goldman partner tasked with developing SecDB in the early 1990s.

Eventually, Mr. Dubno said, executives used it to overrule traders and others who wanted to make decisions based on their “gut” or their own analysis. “We got to the point where the risk system was the bible…Management would look at a report and say ‘that’s your risk. I don’t care what you say.’”

And, importantly, traders themselves would learn to trust the system, he said.

Write to Justin Baer at justin.baer@wsj.com