Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Commentary

Goldman’s high-frequency code stolen?

Reuters has it, and an analysis from Zero Hedge:

on Friday, one Sergey Aleynikov was arrested at Newark airport by FBI agents, as he was coming back from a trip to Chicago (maybe visiting his new employer), on what are basically industrial espionage charges. Sergey, or Serge as his Linked-In account identifies him, was VP of equity strategy over at 85 Broad (or maybe 1 New York Plaza, his detailed Bloomberg Bio page has disappeared) had the following responsibilities at Goldman Sachs according to Linked-In:

• Lead development of a distributed real-time co-located high-frequency trading (HFT) platform ..

In the 5 days immediately preceeding his departure from “Financial Institution” (potentially GS), Sergey allegedly downloaded 32 megs of ultra top-secret quant trading proprietary code, that, according to Special Agent McSwain’s affidavit, he then proceeded to encrypt and upload to a website in Germany, with a UK owner. One can only imagine the value of this “code” not only to Goldman but to the highest bidder. After all, from the affidavit: “certain features of the [code], such as speed and efficiency by which it obtains and processes market data, gives the Financial Institution a competitive advantage among other firms that also engage in high-volume automated trading.The Financial Institution further believes that, if competing firms were to obtain the [code] and use its features, the Financial Institution’s ability to profit from the [code]’s speed and efficiency would be significantly diminished.” Needless to say, many others are now also likely hot on the trail of the code.

To those that don’t think ZH is a worthy source, the NY Times has it as well. (HT: Anil Shenoy)

A quick recap: Programmer at Goldman’s High Frequency Quant trading division decides to quit for 3x his salary, and transfers source code out of the US. 32 megs of it. They figure it out but take a month to do so, and have him arrested. Now, the code’s been out there for a month, presumably looking for a buyer. It’s likely someone already knows about it – and despite Goldman’s “security” claims, it could have been a potential [failed] buyer that raised the alarm.

If it’s true, it might be a volatile time for the high freq trading programs in the US. (In India, the high freq traders are all human. You should see the speed they can type orders.)

  • maurya says:

    >ZH is a amazing blog.

  • kvv says:

    >I found the following excerpt from the NY Times article amusing. So, a market manipulation program can be trusted in the hands of GS but not in the hands of someone else?

    "However, at a court appearance in Manhattan on July 4, Joseph Facciponti, the assistant United States attorney, told a federal judge that Mr. Aleynikov’s supposed theft posed a risk to United States financial markets and that other people may have had access to it, according to Bloomberg.

    “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Mr. Facciponti said in the court, according to Bloomberg."