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Monday, 6 July 2009

Let's all Make Money Fast the Goldman way

Ever since there have been exchanges and computers people have tried to figure out how to beat the market using cmputers. One way is to analyse and analyse data looking for trends or market discrepancies, another is to loook for arbitrages across markets, and yet another is to react very fast to changes in data.

The latter is key to Goldman's automated stock and commodities trading business, and being faster than all the ther banks who are hooked up to the same information feeds and exchange links is a key. So their algorithms and their software are prized assets.

So prized in fact that when one of their programmers was lured away for three times his $400,000 Goldman salary, he allegedly tried to take the source code with him. While most Americanss were celebrating the 4th of July, a Russian immigrant living in New Jersey was held on federal charges of stealing secret computer trading codes from Goldman Sachs.

Federal authorities contend the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major financial institution generate millions of dollars in profits each year. Federal authorities say the software quickly processes market information and using secret mathematical formulae, allows the firm to make automated trades.

This case may be worth watching because it will most likely shed a great deal of light on hw the Goldman department operates and in order to assert that there is any value in the stolen software, Goldman may have to impart some details on the proprietary algorithms - it is easy to see how a good defence lawyer could denigrae the vaue of the black box if Goldman don't eveal its contents.

This is how the criminal complaint describes the Goldman trading platform: “The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.”

The complaint did not list the firm, but biographical information for Aleynikov on LinkedIn says he joined Goldman in May 2007 and was vice president for equity strategy. The bio says he was responsible for “development of a distributed real-time co-located high-frequency trading platform.”

Aleynikov apparently had just started a job with another big firm in Chicago after leaving his previous employer in New York in early June, who alerted federal authorities. On July 4, Aleynikov was processed on a “theft of trade secrets charge” in a criminal complaint. As of Sunday morning, he was still being held at the Metropolitan Correction Center in Brooklyn.

The case against Aleynikov may explain why the New York Stock Exchange moved quickly last week to stop reporting program stock trading for its most active firms. Goldman was often at the top of the chart — far ahead of its competitors. Goldman may have asked the NYSE to stop reporting the number after it discovered that someone may have infiltrated the proprietary computer codes it uses.

Federal authorities appear to believe Aleynikov may have had help. The German website that Aleynikov is accused of uploading the stolen information to is registered to a person in London. Not me guv.

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