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Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?

Tyler Durden's picture





 

Major developing story: Matt Goldstein over at Reuters may have just broken a story that could spell doom for if not the entire Goldman Sachs program trading group, then at least those who deal with "low latency (microseconds) event-driven market data processing, strategy, and order submissions." Visions of swirling, gray storm clouds over Goldman's SLP and hi-fi traders begin to form.

Back-up: This week's NYSE Program Trading report was very odd: not only because program trading hit 48.6% of all NYSE trading, a record high at least since the NYSE has kept tabs on this data, and a datapoint which in itself was startling enough to cause some serious red flags as I jaunt from village to village in what little is left of Europe's bison country, but what was shocking was the disappearance of the #1 mainstay of complete trading domination (i.e., Goldman Sachs) from not just the aforementioned #1 spot, but the entire complete list. In other words: Goldman went from 1st to N/A in one week.

Even more odd, this "disappearance" comes hot on the heels of what Zero Hedge reported could be potentially a major change to the way the NYSE provides its weekly program trading report. Of course, Ray over at the NYSE immediately replied to Zero Hedge that all was going to be same as always ... Odd, maybe he meant that all is back to normal except the reporting of Goldman's trades. Either way, it might very well be time for proactive readers to again contact the two employees publicly disclosed by the NYSE as lead-contacts on the issue.  Readers will recall that it was these same two who were previously steadfastly assuring anyone who would listen that there would be no change at all in data reporting.

Robert Airo, Senior Vice President, NYSE Euronext at (212) 656-5663 or
Aleksandra Radakovic, Vice President, NYSE Regulation at (212) 656-4144

Alas, the just released weekly data proves that either theirs was a material misrepresentation of facts, or Goldman simply suddenly decided to stop transacting with the NYSE, or, what would be even more sinister, Goldman notified the NYSE to scrap all their trading data from the prior week. Why would they do that?

Goint back to Matt Goldstein's story. In a nutshell, 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.The main objective was to engineer a very low latency (microseconds) event-driven market data processing, strategy, and order submission engine. The system was obtaining multicast market data from Nasdaq, Arca/NYSE, CME and running trading algorithms with low latency requirements responsive to changes in market conditions.
• Implemented a real-time monitoring solution for the distributed trading system using a combination of technologies (SNMP, Erlang/OTP, boost, ACE, TibcoRV, real-time distributed replicated database, etc) to monitor load and health of trading processes in the mother-ship and co-located sites so that trading decisions can be prioritized based on congestion and queuing delays.
Responsible for development of real-time market feed handlers, order processing engines and trading tools at a Quantitative Equity Trading revenue-making HFT desk.

If the allegations are true, it looks like Goldman's hi-fi quant trading desk was thoroughly penetrated by a "spy", and as readers will recall, Serge(y)'s description of his job duties mirrors what Mr. Ed Canaday conveniently provided to Zero Hedge as a description of Goldman's SLP program. (Sources connected with the office of the United States Attorney have confirmed to Zero Hedge that Aleynikov was at one time or another a Goldman employee.").

The plot thickens: per FBI agent Michael McSwain's sworn deposition, Sergey quit a firm described as "Financial Institution" in the affidavit, which according to circumstantial evidence and according to Goldstein is none other than Goldman Sachs, on June 5, at that time earning $400,000 annually. As Matt reports, he proceeded to move to a Chicago firm engaged in "high volume automated trading" where he would make 3x his $400k salary (Hey Getco, is it time for a formal release at least denying you guys had anything to do with this, cause if you did it might not look that hot. No matter, we have reached out to our sources in law enforcement to confirm or deny Getco's, and Goldman's, involvement: once we get a response we will immediately advise our readers).

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.

What is probably most notable, in less than a month since Sergey's departure from [Goldman?], the FBI was summoned to task and the alleged saboteur was arrested and promptly gagged: if anyone is amazed by the unprecedented speed of this investigative process, you are not alone. If only the FBI were to tackle cases of national security and loss of life with the same speed and precision as they confront presumed high-frequency program trading industrial espionage cases... especially those that allegedly involve Goldman Sachs.

Now the real question here is, does [GS?] feel lucky? Because the code has supposedly been in the hands of an outsider for over a month, one might suspect that anyone who wanted to has had ample opportunity - if the holder(s) wished to sell... Would that have anything to do with the even weirder than usual market action over the past 2-3 weeks: after all it is the very Goldman Sachs (which may or may not be the target of this program trading industrial espionage) which is the primary SLP on the world's biggest stock exchange.

Another major question: do Goldman and the NYSE not have a fiduciary responsibility to announce to both shareholders and any interested parties if there has been a major security breach in their trading operations? Certainly this seems like a material piece of information: given that program trading accounted for 49% of all NYSE trading last week, and Goldman as recently as one week ago represented about 60% of all principal program trading, will this be called an issue threatening the National Security of the United States. Shouldn't all market participants be aware that there is some rogue code in cyberspace that can be abused by the highest bidder, who very likely will not be interested in proving the efficient market hypothesis?  What will happened when said bidder goes about trying to front run none other than the "Financial Institution" [GS]?

The complete affidavit can be downloaded from this post here, and is also provided Scribed below as this could (and likely should) become a matter of National Security. Zero Hedge will closely monitor this situation from the European hinterland and provide updates as they come. For really interested readers, we recommend tracking any potentially new developments on the forums and message boards over at Wilmott.

Lastly, a quick question to lawyers among our readers: what if any is the likelihood that Goldman will be forced to provide associated discovery if this were to become an extended legal case?

 

 

 

major hat tip Matt Goldstein of Reuters

 


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Sun, 07/05/2009 - 17:51 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:03 | Link to Comment Arm
Arm's picture

Don't be so unhappy.  I shorted two months ago and am about to expire worthless

Sun, 07/05/2009 - 18:14 | Link to Comment maui73
maui73's picture

Tyler . This is a huge story . thx for your great work.

Mon, 07/06/2009 - 00:47 | Link to Comment andy55
andy55's picture

Agreed -- incredible work and dilligence, TD and all others on this story!  Your work makes me feel like America is not yet totally lost! 

Sun, 07/05/2009 - 18:19 | Link to Comment svendthrift
svendthrift's picture

So, Monday morning comes a ban on shorting bankster stocks?

Sun, 07/05/2009 - 18:19 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:22 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:23 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:30 | Link to Comment Anonymous
Mon, 07/06/2009 - 13:13 | Link to Comment Talkhard
Talkhard's picture

He kissed a man too?!?!

Sun, 07/05/2009 - 18:31 | Link to Comment Comrade de Chaos
Comrade de Chaos's picture

Found "his" (names match)  website, he must be a cybernatic mechanism ...

http://alsen.livejournal.com/

 

let the robot wars begin : )

Thu, 07/09/2009 - 07:15 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:32 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:37 | Link to Comment ScepticalMind
ScepticalMind's picture

Enormeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee!!!!!!!!!!! (at french for enormous....)

Sun, 07/05/2009 - 18:37 | Link to Comment pinkboxtrader
pinkboxtrader's picture

I read through the PDF and either this guy is the dumbest software guy making 400k/yr or it was just a mistake in uploading some parts of the source code. He gets a new job offer then in his last week of work decides to upload the critical code to a repository machine using https? And the smoking gun is his shell history and a copy of the script he left on his desktop? Any software guy with half a brain trying to steal even $100 would have transported out the source in a much more obfuscated manner. This is all assuming that 'Financial Institution' had blocked all abilities to transfer the files onto physical portable media without logging the exact content while inside the facility. Of course if security were this important then why was the 'top secret' code on a machine connected to the Internet? I'm not sure if the story adds up if there was a malicious intent. Or maybe the code in question isn't really that important and this is just a scare tactic to keep the other nerds afraid of leaving the family. If it is something good I sure hope it starts showing up on the public torrents. Maybe give 'Financial Institution' a taste of what being on the wrong side of insider information is like.

 

Either way I hope it puts the scare into big institutions relying on this kind of information control for their financial edge (or even viability). In the game of greed, how much do you pay the nerd who creates you a cash generating black-box? Well in theory it should just about be the value of the incoming cashflows minus cost of capital. If not you'd better worry about how easy that edge can disappear for an incrementally higher bidder. Background checks, patriotism and legal enforcement tougher than theft of trade secret can barely contain top secret government data. In the Capital Markets Casino with no allegiances firms should seriously worry about non-equity partners who do the critical work which must remain secret to be effective.

Sun, 07/05/2009 - 18:45 | Link to Comment Anonymous
Mon, 07/06/2009 - 00:56 | Link to Comment andy55
andy55's picture

Well, you have to remember there's a variety of engineer/CS people out there...  Physics, finantial, and math guys, as you know, often can be weak on the workstation/code side.   In fact, as a software engineer that's managed all kinds of minds, it's random how talented of a theorist a guy can be while his shell/workstation level of knowledge is low.

Mon, 09/07/2009 - 18:30 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:38 | Link to Comment Bubby BankenStein
Bubby BankenStein's picture

Wow!

No matter what the outcome will be, this could be written into the climax of a blockbuster drama titled "Chernobyl Syndrome"

Sun, 07/05/2009 - 18:52 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:52 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:05 | Link to Comment Arm
Arm's picture

Anybody who knows anything about banking knows that operations are basically run by senior analysts and middle managers (VP's and associates).

Directors, and MD's are the happy faces to sell to clients.   So yes, this VP would be in fact the operational coordinator for that trading group.  That would make his knowledge very significant.

 

Sun, 07/05/2009 - 23:03 | Link to Comment Anonymous
Sun, 07/05/2009 - 18:54 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:00 | Link to Comment Tyler Durden
Tyler Durden's picture

Here are examples of what happens in traditional quant trading IP cases:

http://www.reuters.com/article/mergersNews/idUSN1915944520070619

http://iapps.courts.state.ny.us/webcivil/FCASJcaptcha?forward_url=/webcivil/FCASSearch%3FtxtIndex%3D600909/2009%26cboCounty%3D30%26from%3DY

The FBI was involved in exactly zero of them. This was supposed to be a statement. Of what nature, it remains to be seen.

Sun, 07/05/2009 - 19:28 | Link to Comment channel_zero
channel_zero's picture

TD: you clearly conflating a couple of stories.  Story 1 is the volume disappearing. Story 2, guy possibly steals code.  Mixed up in there is your heated conspiracy thinking.

You are as distracted as most are by the alphabet soup this guy was spewing.

SNMP

You can't do anything sub-second with SNMP anything. Period.  It just doesn't work that way. You can notify an admin a service has stopped, or something like that.  There's no heat here.

Erlang/OTP

Now, erlang is something that can possibly do sub-second stuff on its own.  I would be very surprised a VP is the algorithym guy.  Would he have access to the code? Probably.

boost, ACE, TibcoRV

This is software engineering sploog  for some C++ libraries and a message passing framework.  TibcoRV will get your sub-second trades.  But the magic is in the C++/erlang code. 

BTW, why mix them?  That's a baaaaad combination.  If he actually has a coding background, it's probably in C++ because Erlang doesn't have much in the way of textbooks or Sun/Microsoft to promote it in schools.

real-time distributed replicated database

More sploog.  This guy's a Veep.  Other than getting a presentation from the coders, he probably doesn't have a clue.

Can a competitor do something **quickly** with the code?  Depends on how good the shop is that will port the code.  This guy would only be instrumental in that he might have taken the code.  Is this some secret/magic code that precious few are capable of doing?  Not at all. 

Is GS evil?  Sure, but this is side-show stuff.  The mainstream media knows a good story.  This isn't one of them.

Sun, 07/05/2009 - 20:51 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:55 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:01 | Link to Comment Alcuria
Alcuria's picture

"SNMP You can't do anything sub-second with SNMP anything. Period. It just doesn't work that way. You can notify an admin a service has stopped, or something like that. There's no heat here."

Nonsense. We use SNMP to alert us when certain thresholds are reached on WAN links, and we use SNMP SETs to make various adjustments based on which specific threshold is reached. I can assure you it happens sub-second And when using SNMPv3, this occurs in an authenticated, encrypted manner

Mon, 07/06/2009 - 02:26 | Link to Comment channel_zero
channel_zero's picture

We use SNMP to alert us when certain thresholds are reached on WAN links

As do we.  Does the *whole* process happen in 10th's of seconds?  No.  Link fails>router fires SNMP message>SNMP server recieves message, then maybe even fires off a SET back to the router and sends a notification via snmp.  In less than 1 second? No.

Among other things, the other side of the transaction would timeout.

Sun, 07/05/2009 - 21:38 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:44 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:52 | Link to Comment FischerBlack
FischerBlack's picture

Well, CNBC has picked up the story.  http://www.cnbc.com/id/31750907. And they know a good story, as you say...

But you're missing the point, anyway -- and it has nothing to do with conspiracy theories. Goldman can't go back to trading using this code now that it's out there. It will take some time for them to go to Plan B -- I don't know how long. In the meantime, no Goldman PT, no liquidty, get ready for the volatility. If this story is true, the chances of a market liquidity event have just gone up significantly.    

Mon, 07/06/2009 - 07:25 | Link to Comment Anonymous
Mon, 07/06/2009 - 07:38 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:22 | Link to Comment akreitman
akreitman's picture

He should upload the code to wikileaks, that will level the playingfield!

Sun, 07/05/2009 - 19:26 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:27 | Link to Comment Bubby BankenStein
Bubby BankenStein's picture

A few questions:

Did GS shut down operations based on this code due to the breach?

Could this breach have anything to do with the extended session July 2?

Is the FBI on it because of GS influence, or is it such a serious threat that their hair is on fire?

Is the possibility of others adapting the code to their operations a game changer?

Is this a smoke screen?

 

 

Sun, 07/05/2009 - 19:27 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:33 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:34 | Link to Comment Anonymous
Sun, 07/05/2009 - 19:49 | Link to Comment lgevik
lgevik's picture

CNBC picked up the story...  http://www.cnbc.com/id/31750907

Sun, 07/05/2009 - 20:41 | Link to Comment agrotera
agrotera's picture

Yea, and it is candy coat, and gloss over any significance as if all that matters is whether big daddy's quarterly earning will be hurt by the story!

Sun, 07/05/2009 - 19:54 | Link to Comment maui73
maui73's picture

http://www.cnbc.com/id/31750907

 

but the this line is missing from the cnbc.com  article :"..The Zerohedge blog was all over this controversy a week ago..."

 

 

Sun, 07/05/2009 - 19:55 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:00 | Link to Comment orange juice
orange juice's picture

oooh well if they had it for a month it was probably old anyways. I remember reading somewhere that algorithms older than ~3 months just aren't relevant anymore, so I'd be surprised if this code was integral to what GS is running now.  Anyway, in the last few weeks we've seen tops begin to form in all markets... so we were long overdue for some gearshifting.

 

Now it's time to see the GS SLP run some short progs.

Sun, 07/05/2009 - 23:52 | Link to Comment JohnKing
JohnKing's picture

Scoring algos could be old in days or minutes but the basic framework of data collection> indexing> storage> serving would probably have a longer shelf life.

 

 

Sun, 07/05/2009 - 20:07 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:15 | Link to Comment Bubby BankenStein
Bubby BankenStein's picture

Firmly place a tin foil hat on your head:

Serge's CV claims significant expertise in telecommunications routing, skills potentially valuable in routing / replicating exchange traffic through the back office of select secret trading systems in real time.  Such skills could also contribute to "Communications Glitches".  

Sun, 07/05/2009 - 20:22 | Link to Comment Moe Speeks
Moe Speeks's picture

Excellent News Story Tyler, as usual.

Break this wide open to the world.

Sun, 07/05/2009 - 20:25 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:29 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:32 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:07 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:38 | Link to Comment Bubby BankenStein
Bubby BankenStein's picture

Ok, but if info he has sent to others lives on, then what is to be gained other than punishment?  I guess the question is who gets punished.

Mon, 07/06/2009 - 07:25 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:33 | Link to Comment Anonymous
Sun, 07/05/2009 - 20:38 | Link to Comment agrotera
agrotera's picture

to Tyler and anyone else who may be able to enlighten me please:

I see the tie in with the inquiry to mr. canaday, but what i would like to know, if this case proceeds, wouldn't it also be fruitful and important to know the activities of the presidents working group to make sure there aren't any insider exercises there either--even if you take away what the rest of the world is trading, when the PPT puts in the orders, if goldman has a way of playing off of that, since these trades are "supposedly" about protecting our national interests, wouldn't it be important to get transparency of the actions of the pres working group in order to check this as well? 

I think it is time all of America knows about the the presidents working group, and questions need answering, and transparency needs to be provided.

Sun, 07/05/2009 - 21:14 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:32 | Link to Comment agrotera
agrotera's picture

Sorry Anonymous,   I meant, the agents that act on behalf of the President's Working Group who then execute orders.  I think it has been suggested that the primary dealers are secondary agents, and the primary agents that make the orders to execute the President's Working Group's agenda, are private funds...do i have this wrong?

Sun, 07/05/2009 - 20:52 | Link to Comment My cognitive di...
My cognitive dissonance's picture

Excellent job Tyler. It'll be interesting to see how this plays out tomorrow. 

Sun, 07/05/2009 - 20:58 | Link to Comment KidDynamite
KidDynamite's picture

sadly, that CNBC (Reuters) version ( http://www.cnbc.com/id/31750907)  of the story basically copies TD's version, complete with erroneous details "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.".  It should be clear to anyone who is paying attention that the NYSE absolutely did NOT move to stop reporting the program trading numbers.   TD - i have to say though - it looks like they BLATANTLY plagarized your post on this.

 

I was the one who posted these weekly PT numbers on Thursday in one of your threads, mentioning that it was impossible for GS to drop off the list.  Even if they completely withdrew their SLP participation, it's a mortal lock that they traded stock for the Russel Rebal.  There is ABSOLUTELY a story here somewhere with the NYSE PT volume this week, but I am guessing it's an error of data omission (also, note the totals on the report:  the total volume is less than the "top 15 member firms" volume - clearly f'd up).  Still - I do hope you get to the bottom of GS's sudden disappearance from the report.

 

the rest of this?  come on - it's an IP suit - it happens all the time.  For you to suggest that the NYSE or GS needs to warn the world that they may have had some intellectual property leak out does a disservice to your reporting.  Let Clusterstock be the tabloid - keep digging on the real stories.

Sun, 07/05/2009 - 21:06 | Link to Comment KidDynamite
KidDynamite's picture

oh - by the way - as to the question of why the FBI is involved?  Come on  - this one is easy. It's not because the loss of this intellectual property will cause the implosion of the modern financial system - despite what you zealots would like to believe - it's because the defection will potentially result in a loss of profits to Goldman.  If you mess with the FreeMasons, you get burned:  DNFWGS (Do Not Fuck with Goldman Sachs) - sure - they are more than capable of using their nationwide influence to get special FBI involvement on this.

Sun, 07/05/2009 - 21:19 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:52 | Link to Comment agrotera
agrotera's picture

hear-hear!  in a banana republics you may have general learned helplessness, but here in the US, we have mass public delusion fed with learned helplessness with a generous coating of hope for everything to magically change (just like the mentality of small children who have magical thinking as one main part of their thought process)

Sun, 07/05/2009 - 21:22 | Link to Comment Arm
Arm's picture

I am somewhat surprised by the GS reaction.  IP theft happens all the time and would very rarely involve prosecution.  In fact this guy was the VP in charge of the developers, for all practical purposes he knew (should have known) the working principles of all the moving parts.  I know coders love to blow their horn, code is important, but the underlying principles for the trade are much more so.  If this guy knew the trades, he could easily replicate them with a new set of coders.  In fact that is what usually happens, and why quant funds have a hard time keeping their edge.  Thus the reaction is unexpected.  I would love to know if there is anything else in those codes.  

 

If I was GS, I too would be very nervous about executing a code, whose weaknesses are exposed.  I would not expect that particular team to be trading tomorrow.

 

Sun, 07/05/2009 - 21:29 | Link to Comment Anonymous
Sun, 07/05/2009 - 21:30 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:03 | Link to Comment FischerBlack
FischerBlack's picture

LOL, at least they're writing stories instead of one line dismissals of stories.

But your whole "Complete lack of understanding" bullshit is a dead giveaway. Goldmanites are in love with how smart they think they are. I think we've got you pegged.

Sun, 07/05/2009 - 22:06 | Link to Comment agrotera
agrotera's picture

FisherBlack aka bankshillhunter! Awesome

Mon, 07/06/2009 - 00:19 | Link to Comment Cursive
Cursive's picture

Do you actually own GS or are you a paid to troll blogsites and type this crap?

Sun, 07/05/2009 - 22:11 | Link to Comment orange juice
orange juice's picture

o/t SP just got dumped. also noted a lot of contracts that changed hands vol. just disappeared, it registered on the total vol., depth, vap etc. then 5 min later was gone, but you can still see it if you bring up an image

Sun, 07/05/2009 - 22:23 | Link to Comment jm
jm's picture

OJ:

 

Not able to see the print.  What timeframe are you noting?

Sun, 07/05/2009 - 23:42 | Link to Comment orange juice
orange juice's picture

it was in a ~15m before i posted.  I've noticed this has happened a lot in the last two weeks but usually it occured around midnight to one est.  It's weird to me because the volume will trickle along and then *bam* a huge block (relative to local vol.) goes through, it'll get filled and then disappear like half an hour later.  I've also seen massive orders go through (40k+ contracts in the bond market) way outside of the current bid/ask that were getting filled while trading was going on at a much higher price.

Sun, 07/05/2009 - 21:59 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:02 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:23 | Link to Comment agrotera
agrotera's picture

Not if it exposes a long term pattern of frontrunning instead.

Sun, 07/05/2009 - 22:49 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:56 | Link to Comment agrotera
agrotera's picture

hahaha good one--so much truth in your jest!

Sun, 07/05/2009 - 22:02 | Link to Comment KidDynamite
KidDynamite's picture

by the way - wouldn't it make all of you foil hatters happy if GS's competetive edge in high frequency trading went away?  what's to complain about?

Sun, 07/05/2009 - 22:06 | Link to Comment FischerBlack
FischerBlack's picture

Futures are getting pummeled.

Sun, 07/05/2009 - 22:09 | Link to Comment berlinjames02
berlinjames02's picture

Looks like GS is back to the drawing board to build a new 'black box' so the NYSE can buy it again for twice the price. At least it's slowed them down for a week or so.

 

TD- thanks for breaking/following this story. Maybe you should ask the potential buyer to post the program to ZH? I would love to use the golden goose for a couple days or hours or minutes!! However, I would probably mess up the program and cause the NYSE to receive faulty orders. Maybe this explains why there have been 2 incidents of trading problems in the past month (June 12 and July 2)?

 

 

Sun, 07/05/2009 - 22:21 | Link to Comment Anonymous
Sun, 07/05/2009 - 22:37 | Link to Comment KidDynamite
KidDynamite's picture

hey Tyler - since you have the ear of Goldman Sachs, I hope you are posing them the question of "what happened to your program trading volume last week?"    It's a simple question and deserves an answer. 

Mon, 07/06/2009 - 00:23 | Link to Comment Cursive
Cursive's picture

I second this.

Sun, 07/05/2009 - 22:49 | Link to Comment old felix
old felix's picture

A hundred years ago the "Masters of the Universe" started to lose control because they didn't understand what their 'experts' were doing.  Now they're losing control of their last secrets, fiat money and the asset bubble machine.  A little Champagne music please Mr. Welk. Wunnerful, Wunnerful!

The following is from

Operating Manual for Spaceship Earth

by Buckminster Fuller, E.P. Dutton & Co., New York. c1963

 

Then there came a time, which was World War I, when the most powerful out-pirates challenged the in-pirates with the scientific and technological innovation of an entirely new geometry of thinking. The out-pirates attack went under and above the sea surface and into the invisible realm of electronics and chemical warfaring. Caught off-guard, the in-pirates, in order to save themselves, had to allow their scientists to go to work on their own inscrutable terms. Thus, in saving themselves, the Great Pirates allowed the scientists to plunge their grand, industrial logistics, support strategy into the vast ranges of the electro-magnetic spectrum that were utterly invisible to the pirates.The pirates until then had ruled the world through their extraordinarily keen senses. They judged things for themselves, and they didn’t trust anyone else’s eyes. They trusted only that which they could personally smell, hear, touch, or see. But the Great Pirates couldn’t see what was going on in the vast ranges of the electro-magnetic reality. Technology was going from wire to wireless, from track to trackless, from pipe to pipeless, and from visible structural muscle to the invisible chemical element strengths of metallic alloys and electro-magnetics.

The Great Pirates came out of that first world war unable to cope knowledgeably with what was going on in the advanced scientific frontiers of industry. The pirates delegated inspection to their "troubleshooter" experts, but had to content themselves with relayed second-hand information. This forced them to appraise blindly-ergo, only opinionatedly‹ whether this or that man really knew what he was talking about, for the G. P.’s couldn’t judge for themselves. Thus the Great Pirates were no longer the masters. That was the end. The Great Pirates became extinct. But because the G. P.’s had always operated secretly, and because they hoped they were not through, they of course did not announce or allow it to be announced that they were extinct. And because the public had never known of them and had been fooled into thinking of their kingly stooges and local politicians as being in reality the head men, society was and is as yet unaware either that the Great Pirates once ran the world or that they are now utterly extinct.

Though the pirates are extinct, all of our international trade balancing and money ratings, as well as all economic accounting, in both the capitalistic and communistic countries, hold strictly to the rules, value systems, terminology, and concepts established by those Great Pirates. Powerful though many successors to the Great Pirates’ fragmented dominions may be, no one government, religion, or enterprise now holds the world’s physical or metaphysical initiatives.


When, as we have seen, the Great Pirates let their scientists have free rein in World War I the Pirates themselves became so preoccupied with enormous wealth harvesting that they not only lost track of what the scientists were doing within the vast invisible world but they inadvertently abandoned their own comprehensivity and they, too, became severe specialists as industrial production money makers, and thus they compounded their own acceleration to extinction in the world-paralyzing economic crash of 1929. But society, as we have seen, never knew that the Great Pirates had been running the world. Nor did society realize in 1929 that the Great Pirates had become extinct. However, world’ society was fully and painfully aware of the economic paralysis. Society consisted then, as now, almost entirely of specialized slaves in education, management, science, office routines, craft, farming, pick-and-shovel labour, and their families. Our world society now has none of the comprehensive and realistic world knowledge that the Great Pirates had.


http://www.bfi.org/node/422

Sun, 07/05/2009 - 22:51 | Link to Comment Anonymous
Sun, 07/05/2009 - 23:01 | Link to Comment Anonymous
Sun, 07/05/2009 - 23:40 | Link to Comment Anonymous
Sun, 07/05/2009 - 23:43 | Link to Comment Printfaster
Printfaster's picture

Explains the queer 15 minutes added on Thursday.  Sompins up.

Tyler, any chance this is international?  Something east of Finland?

Or should I ask Marla?

 

Sun, 07/05/2009 - 23:45 | Link to Comment Printfaster
Printfaster's picture

Oh yes, and Serge is a canard.  The real leak no one knows about.  Like the fake bearer bonds in Chiasso.

I feel an old Dylan song coming on.  Do you Mr Jones?

 

Sun, 07/05/2009 - 23:58 | Link to Comment agrotera
agrotera's picture

Strange, that was my first thought when i read the story....the question that ran through my head was i wonder how much goldman paid sergey to do this, and why this expensive diversion?

Sun, 07/05/2009 - 23:48 | Link to Comment OSR
OSR's picture

VP or not, Aleynikov is the real deal--he's got several patents for his algorithms (although none assigned to GS).

Sun, 07/05/2009 - 23:48 | Link to Comment abhinavkapur
abhinavkapur's picture

Tyler,

Great post on a sure-to-watch story. Amazing how a piece of finance can become a matter of national security. Especially telling is the response time by the FBI. Maybe they realized the threat to national security and acted accordingly? I'm not familiar with the usual response time for high priority cases, so I'm not sure how it compares.

Keep up the good work ZH, I'll be sure to by some schwag soon.

Sun, 07/05/2009 - 23:49 | Link to Comment Anonymous
Sun, 07/05/2009 - 23:57 | Link to Comment agrotera
agrotera's picture

.

Sun, 07/05/2009 - 23:59 | Link to Comment dnarby
dnarby's picture

That the FBI jumped on this means one of two things:

 

1.  They, or a good portion, are in the pocket of GS.

 

2.  The Russians want it.

Mon, 07/06/2009 - 00:04 | Link to Comment Anonymous
Mon, 07/06/2009 - 00:39 | Link to Comment Anonymous
Mon, 07/06/2009 - 01:02 | Link to Comment Printfaster
Printfaster's picture

OK Marla, just to show you how much I love you, how about this one.

Serge is not that sharp.  What he does is send the work to Russia and it gets done there under the best minds in Russia.  They ship the work back to him and he kicks back his salary.

GS and the FBI found out Serge did this when someone in Russia created an anti missile for the GS missile.

Am I getting warm yet?

 

Mon, 07/06/2009 - 01:11 | Link to Comment My cognitive di...
My cognitive dissonance's picture

 G.S...compromised? What if. Does it change things at the July G-8?

It has an odd mix of Russian, German and English involved.

Mon, 07/06/2009 - 01:21 | Link to Comment Printfaster
Printfaster's picture

Hey Tyler

I notice that there are twice as many comments over at blogspot as here.

Is there anyway to have one ship instead of two?

Mon, 07/06/2009 - 01:27 | Link to Comment Marla Singer
Marla Singer's picture

Soon.  Soon.

Mon, 07/06/2009 - 01:27 | Link to Comment Anonymous
Mon, 07/06/2009 - 01:39 | Link to Comment Anonymous
Mon, 07/06/2009 - 02:00 | Link to Comment Socrates
Socrates's picture

Let's make this a Clancy novel....he was SUPPOSED to get caught!

Let the speculation begin.

Socrates

Mon, 07/06/2009 - 02:03 | Link to Comment Anonymous
Mon, 07/06/2009 - 02:09 | Link to Comment Got2balls
Got2balls's picture

I think most GS investors will start cashing out soon. Just my 2 cents.

Mon, 07/06/2009 - 02:33 | Link to Comment hedgnome
hedgnome's picture

Just imagine the atmosphere of suspicion this boondoggle must create between colleagues at GS. Then again I dont see how they would trust eachother anyways.

Mon, 07/06/2009 - 03:07 | Link to Comment Anonymous
Mon, 07/06/2009 - 04:23 | Link to Comment Anonymous
Mon, 07/06/2009 - 05:55 | Link to Comment Anonymous
Mon, 07/06/2009 - 06:02 | Link to Comment Anonymous
Mon, 07/06/2009 - 06:22 | Link to Comment Arm
Arm's picture

Let's party like it's 1932

http://www.youtube.com/watch?v=5D-13V7Zqwk

Mon, 07/06/2009 - 06:57 | Link to Comment kilroy
kilroy's picture

looks like this guy is: just another perl hacker

 

http://search.cpan.org/~randir/Devel-Assert-0.01/

 

sorry, couldn't resist.

 

maybe he didn't want the source code to steal anything, but he wanted to be able to review/re-use logic that he wrote (which probably no longer belongs to him as he wrote it while working for GS so it is now their IP). Regardless, a huge no-no ftp'ing off a server like that.

Mon, 07/06/2009 - 07:27 | Link to Comment Anonymous
Mon, 07/06/2009 - 07:58 | Link to Comment hedgnome
hedgnome's picture

Arm that is pure freaking gold.

Sadly I doubt its that simple.

Mon, 07/06/2009 - 07:59 | Link to Comment Anonymous
Mon, 07/06/2009 - 08:38 | Link to Comment Anonymous
Mon, 07/06/2009 - 12:23 | Link to Comment Cindy.Dies.In.T...
Cindy.Dies.In.The.End's picture

Tyler to answer your question, Sure the AG could subpoena or informally request info from GS, but it would most likely be under a protective order, or sealed. I'd watch out for a motion to quash.

 

In house counsel and his flock won't get any sleep tonite or thereafter if this breaks big.

Mon, 07/06/2009 - 12:29 | Link to Comment Cindy.Dies.In.T...
Cindy.Dies.In.The.End's picture

Tyler: to answer your question, it depends. There may be an "informal process" with a protective orderto keep it on the QT, or a subpoena might go out. Keep an eye out for a motion to quash by GS, perhaps.

 

Either done under seal or a protective order--you won't see crap.

Mon, 07/06/2009 - 14:24 | Link to Comment Anonymous
Mon, 07/06/2009 - 14:53 | Link to Comment Anonymous
Mon, 07/06/2009 - 16:19 | Link to Comment Anonymous
Mon, 07/06/2009 - 16:31 | Link to Comment MyKillK
MyKillK's picture

It really blows my mind that there seem to be so many people who are trying to write this story off as a big nothing-burger.

 

Program trading accounted for 49% of all trading on the NYSE a couple weeks ago. Don't forget that the report, according to the NYSE, "accidentally" left off GS in its entirety, the biggest player! When the NYSE "corrects" the PT report, it'll almost surely be over 50%.

 

Tyler pointed out that GS accounts for as much as 60% of all program trading alone. 60% of ~50% would be about 30%. How could anyone possibly claim that the compromising of computer code that single handedly trades ~30% of all NYSE volume is a non-story?? Who knows how much of the dark pool volume these GS systems are trading as well...

 

If that code is as comprehensive as the (admittedly vague) reports make it out to be, and the code has been successfully distributed to outside parties, this could lead to a massive market crash in a matter of milliseconds. Does anyone know if these ultra high frequency trading platforms are even faster than the circuit-breaker mechanisms?

 

And don't listen to anyone, including the NYSE itself, who is trying to claim that GS being left off the last report was just a "spreadsheet monkey" accident. You'd have to be delusional to think that information like that is manually copied into a table...jesus christ this is 2009. GS was either manually removed for whatever reason, or, as many have speculated, GS halted its PT operations because of the code getting out.

Mon, 07/06/2009 - 16:30 | Link to Comment FischerBlack
FischerBlack's picture

Of course, today, as Jim Cramer was talking about the GS story, he invoked me by name -- 2:08 in the below video.

 

http://www.cnbc.com/id/15840232?video=1173252890&play=1

Mon, 07/06/2009 - 16:56 | Link to Comment Anonymous
Mon, 07/06/2009 - 16:40 | Link to Comment Anonymous
Mon, 07/06/2009 - 16:48 | Link to Comment MyKillK
MyKillK's picture

Yes, you really nailed it. The massive danger of having multiple players trading with the same algorithms is paramount. It's not as simple as GS having competition and levelling the playing field. It's more along the lines of Mutual Assured Destruction...it's a bit ironic that the fellow involved is a Russian!

Mon, 07/06/2009 - 17:10 | Link to Comment Anonymous
Sat, 07/11/2009 - 21:40 | Link to Comment Anonymous
Mon, 07/06/2009 - 17:26 | Link to Comment Anonymous
Mon, 07/06/2009 - 17:41 | Link to Comment Anonymous
Thu, 07/09/2009 - 11:03 | Link to Comment Anonymous
Mon, 07/06/2009 - 18:41 | Link to Comment MyKillK
MyKillK's picture

Does your source know who the intended recipients for this stolen code were?

Tue, 07/07/2009 - 02:20 | Link to Comment Kinbote
Kinbote's picture

Isn't the file sharing service Rapidshare based in Germany? The affadavit says

the server he uploaded to was based in Germany. Is it possible that

is where he uploaded his encrypted tarball? Too bad searching Rapidshare sucks,

I haven't been able to find it. :P

Thu, 09/03/2009 - 00:59 | Link to Comment Anonymous
Thu, 06/09/2011 - 17:20 | Link to Comment sun1
sun1's picture

Its one of the good platform for awareness of people. Keep sharing such stuff in the future too. xbox 360 s

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