Goldman Sachs 2015 Annual Report Download - page 54

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The growth of electronic trading and the introduction
of new trading technology may adversely affect our
business and may increase competition.
Technology is fundamental to our business and our
industry. The growth of electronic trading and the
introduction of new technologies is changing our businesses
and presenting us with new challenges. Securities, futures
and options transactions are increasingly occurring
electronically, both on our own systems and through other
alternative trading systems, and it appears that the trend
toward alternative trading systems will continue. Some of
these alternative trading systems compete with us,
particularly our exchange-based market-making activities,
and we may experience continued competitive pressures in
these and other areas. In addition, the increased use by our
clients of low-cost electronic trading systems and direct
electronic access to trading markets could cause a reduction
in commissions and spreads. As our clients increasingly use
our systems to trade directly in the markets, we may incur
liabilities as a result of their use of our order routing and
execution infrastructure. We have invested significant
resources into the development of electronic trading
systems and expect to continue to do so, but there is no
assurance that the revenues generated by these systems will
yield an adequate return on our investment, particularly
given the generally lower commissions arising from
electronic trades.
Our commodities activities, particularly our physical
commodities activities, subject us to extensive
regulation and involve certain potential risks,
including environmental, reputational and other risks
that may expose us to significant liabilities and costs.
As part of our commodities business, we purchase and sell
certain physical commodities, arrange for their storage and
transport, and engage in market making of commodities.
The commodities involved in these activities may include
crude oil, oil refined products, natural gas, liquefied natural
gas, electric power, agricultural products, metals (base and
precious), minerals (including unenriched uranium),
emission credits, coal, freight and related products and
indices.
In our investing and lending businesses, we make
investments in and finance entities that engage in the
production, storage and transportation of numerous
commodities, including many of the commodities
referenced above.
These activities subject us and/or the entities in which we
invest to extensive and evolving federal, state and local
energy, environmental, antitrust and other governmental
laws and regulations worldwide, including environmental
laws and regulations relating to, among others, air quality,
water quality, waste management, transportation of
hazardous substances, natural resources, site remediation
and health and safety. Additionally, rising climate change
concerns may lead to additional regulation that could
increase the operating costs and profitability of our
investments.
There may be substantial costs in complying with current or
future laws and regulations relating to our commodities-
related activities and investments. Compliance with these
laws and regulations could require significant commitments
of capital toward environmental monitoring, renovation of
storage facilities or transport vessels, payment of emission
fees and carbon or other taxes, and application for, and
holding of, permits and licenses.
Commodities involved in our intermediation activities and
investments are also subject to the risk of unforeseen or
catastrophic events, which are likely to be outside of our
control, including those arising from the breakdown or
failure of transport vessels, storage facilities or other
equipment or processes or other mechanical malfunctions,
fires, leaks, spills or release of hazardous substances,
performance below expected levels of output or efficiency,
terrorist attacks, extreme weather events or other natural
disasters or other hostile or catastrophic events. In addition,
we rely on third-party suppliers or service providers to
perform their contractual obligations and any failure on
their part, including the failure to obtain raw materials at
reasonable prices or to safely transport or store
commodities, could expose us to costs or losses. Also, while
we seek to insure against potential risks, we may not be able
to obtain insurance to cover some of these risks and the
insurance that we have may be inadequate to cover our
losses.
The occurrence of any of such events may prevent us from
performing under our agreements with clients, may impair
our operations or financial results and may result in
litigation, regulatory action, negative publicity or other
reputational harm.
We may also be required to divest or discontinue certain of
these activities for regulatory or legal reasons. If that
occurs, the firm may receive a value that is less than the then
carrying value, as the firm may be unable to exit these
activities in an orderly transaction.
42 Goldman Sachs 2015 Form 10-K