A peculiar escalation developing in Chicago (what is it about that city) was today's development in the Citadel - Teza Technologies lawsuit. As a reminder, Teza is the firm run by former Citadel head of HFT and quantitative trading, Misha Malyshev, who got unmasked when it was made clear that he had recruited Sergey Aleynikov from Goldman, and was preparing to launch a quant trading group despite his non-compete with Citadel (which may very well be the reason for the entire Aleynikov fiasco after all). What was surprising in today's hearing was the proclamation by Citadel lawyers that Teza is a "veritable pirate ship of illegal activity."
Whoa, big words there. And probably not half wrong (which i guess means half right, thus preventing someone from suing us for agreeing or disagreeing with what was said). Big enough, that apprently none other than head honcho Ken Griffin was among those present for today's hearing. And likely big enough, because if anyone should know it is Citadel: after all Malyshev made $1 billion for Citadel last year when the firm was down almost 55% (oh yeah, and all those amazing profits Citadel has had so far? Well, they kinda need 100%+ returns just to get above the high water mark... oops), and was the sole profitable group. Which should also answer some of those question regarding the profitability of High Frequency Trading groups.
Also, another reason why the case has gotten such prominence - the enforcability of non-compete lockups. From Crain's:
The case has also garnered attention because of the small window it has
opened on the secretive, lucrative and fast-growing world of
Citadel's lawyers claim that Teza is a competitive enterprise that has
been recruiting talent, building databases of historical and real-time
market, constructing a super-fast trading engine and developing trading
signals and strategies in an effort to be able to engage in
high-frequency, low-latency trading.
Such trading, theoretically, would allow it to predict the price of a
financial instrument one second in the future and profit from that.
Yet Zero Hedge's focus is mostly drawn on the wonderfully visual illegal activity pirate ship. Just what is it about this pirate ship that the firm's lawyers know? After all, Malyshev, together with Simons, are two of the foremost brains in the field of HFT, which for a while has been getting some peripheral blogger and lately mainstream, attention. Is there something rather big brewing in the quantitative arbitrage and ultra-low latency marketplace? Zero Hedge is procuring the transcripts from the recent depositions by Mr. Aleynikos and Malyshev and will provide these, together with out commentary, to our readers shortly.
h/t Jim Bianco