(Reuters) - Goldman Sachs Group Inc GS.N on Tuesday became the first Wall Street bank this earnings season to report lower equities trading revenue, signaling it was unlikely to reclaim the top market share ranking from Morgan Stanley MS.N any time soon.

A Goldman Sachs sign is displayed inside the company's post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 18, 2017. REUTERS/Brendan McDermid

People familiar with the business said a combination of outdated trading technology, a late effort to court quantitative funds and overall fee pressure on the bank’s key clients has blunted Goldman’s edge. It now ranks No. 2 behind its biggest rival.

Last year, the once-dominant bank fell more than $1 billion behind Morgan Stanley MS.N in equities revenue, marking the widest-ever such gap between the firms. That gap, which has been growing for years, has raised pressure from investors looking for answers and prompted Goldman to rethink its strategy.

“If they’re not experiencing the same good results as their peers, you may have to question if they’re owning up to their issues,” said Jerry Braakman, chief investment officer of First American Trust, which holds Goldman shares.

(GRAPHIC: Goldman vs. Morgan Stanley tmsnrt.rs/2opMFS0)

Goldman executives acknowledge that the business has taken a hit and say they are trying hard to turn things around. They point to some key hires and investments they have made in trading technology to win over new types of customers.

But a full rehabilitation will take some time, they said. The executives requested anonymity because they were not authorized to speak publicly.

A spokeswoman for Goldman declined to comment.

Equities trading is a tough business for big Wall Street banks in the best of times. It has costly infrastructure, demanding customers and big operational risks.

Profit margins have been razor-thin for some time, but the business is facing new fee pressure from struggling asset managers. In 2016, total equities revenue at the world’s biggest banks fell 13 percent to $43.4 billion, the lowest level in four years, according to research provider Coalition.

Other trends, like investors’ shifting to passive management, have shaved $15 billion from the equities revenue pool since 2009, according to a report from Morgan Stanley and management consulting firm Oliver Wyman.

Just a handful of players dominate the equities business, which also includes trading in ETFs and derivatives, lending to hedge funds through prime brokerage and providing research to investors.

PLAYING CATCH UP

Goldman's problems began in 2012, when Morgan Stanley launched an equities trading overhaul called "Project Velocity," and began trying to win back clients it lost during the financial crisis. (reut.rs/14kKMtC)

Goldman meanwhile began to stumble. Its head of electronic trading left in early 2013 and soon thereafter it suffered an embarrassing and costly trading glitch in the options market.

Instead of developing light-speed technology to win over computer-driven money managers, Goldman chose to cater to institutional investors, like hedge funds, that it already had relationships with.

The decision cost the bank dearly: high-frequency trading firms now dominate the stock market, representing 55 percent of U.S. daily volume. Meanwhile, active fund managers in Goldman’s target audience have been struggling to attract assets and are doubling down on investments in computer models to cut costs.

“If you’re playing catch up in electronic trading, that’s going to be an issue,” said Benjamin Quinlan, chief executive & managing partner at Quinlan & Associates, a consulting firm that focuses on banks. “It’s not that you can’t succeed, but there is a natural first-mover advantage for firms that started investing in their low-touch platforms earlier.”

On Tuesday, Goldman said its first-quarter equities trading revenue fell 6 percent, compared to gains of 2 percent to 10 percent at Citigroup C.N, Bank of America Corp BAC.N and JPMorgan Chase & Co JPM.N. Morgan Stanley will report results on Wednesday.

TECHNOLOGY REVAMP

Goldman in 2015 took steps to build new trading, hiring Raj Mahajan to revamp electronic technology in equities trading to cater to quantitative hedge funds and institutional investors who are increasingly adopting algorithmic trading strategies.

It also acquired Sweden’s Pantor Engineering to help build out its electronic platform.

Goldman executives say those efforts will take time to bear fruit, and focusing on ironing out quarter-to-quarter bumps in trading revenues should not overshadow existing relationships with clients.

In discussing the first-quarter decline in a conference call on Tuesday, Chief Financial Officer R. Martin Chavez said management is less concerned with market share than with how profitable the business is, and whether clients are satisfied.

“Trading businesses should be measured not so much on quarterly numbers but how well they serve clients,” said Mike Mattioli, a portfolio manager at Manulife Asset Management, which holds shares in Goldman. “Goldman’s management team thinks about it this way.”