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Prosecutors Request Closed Courtroom For Goldman HFT Programmer's Trial
dave562 writes "Goldman Sachs' lawyers have asked the Federal judge to seal the court room during the trial of Sergey Aleynikov. Aleynikov was one of the programmers who developed Goldman's High Frequency Trading (HFT) programs. What does this say about the state of the financial industry? Given the problems HFT seems to have caused over the last few years, shouldn't more light be shined into the dark corners of how it works?"
Is that secret code for bailout? The current administration (and the last, and the next) is Wall street and no amount of rhetoric changes that.
HFT algorithms are considered trade secrets and there is big money behind each one. A firm whose HFT algorithm were made public would be at a serious disadvantage in competing with other firms. It might even be possible to game the algorithm and cost the firm big money.
Courtrooms have been closed several times before to protect trade secrets. The Supreme Court case Ruckelshaus v. Monsanto opinion points out that once secrecy is lost, the property interest is forever destroyed and that it should be protected during the process. There are many other ways to preserve secrecy so closing the courtroom may not be necessary in all cases but that may be the only way to protect the trade secret in this situation.
The only reason these systems work is because they have special access to the data. They can see trade data a couple hundred milliseconds before anyone else and can place their trades a couple hundred milliseconds faster than anyone else. If you can't see the tactical advantage of effectively seeing the near future and be able to react faster than would-be competitors... well then I guess I really don't know what is left to say.
Not -1000 troll, just 0 Anonymous Coward. According to the final SEC report (read pages 5-6), you are right, it was a poorly written automated sell-order script that caused the crash, and high frequency trading algorithms helped the market *recover* as fast as it did.
Is it? The whole point of the trial was that a programmer is accused of stealing the code for a competitor. Presence of a competitor implies absence of a monopoly.
No it doesn't. It implies that somebody wants to compete, it does not imply that they're already in the market.
I keep hearing that "anyone" can do this. Please point me to where I can sign up to collocate my server with the market computers - because that is actually necessary to set up an effective HFT system.
http://www.lightspeed.com/?page_id=5068
http://www.limebrokerage.com/contact_us.shtml
http://www.ften.com/buy-side-products/vx-velocityxpress.html
They all offer colocation services.
You don't need to co-locate for HFT. I personally have built/configured several datafeeds for these systems, and co-location was almost never a financially viable option. Most banks don't co-locate all of their HFT.
We're not talking about paying a few extra bucks on your ETrade account to remove the 15 minute embargo.
Goldman arranged for their servers to be co-located with the stock exchange's servers. Which means they get data faster and can place trades faster than anyone who is not located in the exchange's data center. That kind of access is not available to anyone but the largest investment banks.
And their "big secret" is... ...the emperor has no clothes and their balance sheet is entirely made up. They simply make up the number they want and use alchemy, I mean, custom derivatives traded over the counter with SPVs (special purpose vehicles).
Their technology is 100% proprietary and in house, at the programming language (Slang), database (SecDB) and networking levels (yep, even custom screen editors, no IDEs for Goldman) for added obfuscation. They brag internally about how much they spend on technology, the bulk of which is spent on training people just out of school on their proprietary system. It is almost impossible to audit.
Actually, HFT is largely a small firm game. Some big banks do it, but not all, and they are usually small operations.
The typical profile of an HFT firm is 20 guys in a smallish but nice office, kind of like a startup's, but a bit more grown up. It's not that hard to get your box in a colo w/ NYSE, you just have to pay them. They recently built a huge new datacenter for this very purpose.
I haven't personally made the call to ask about requirements, but I worked at an 8 man startup firm and we threw around the idea of colocating. Being able to was never an issue, it was the cost that deterred us.
That is a completely false statement. Small firms are a lot more likely to use colos than the big banks. As I posted before, there is information on how to get colocated with NYSE right on their website:
http://www.nyse.com/technologies/sfti/1228187874506.html
The costs run about $10k/month/rack if I remember right.
There is no spooky back-room stuff going on here.
For those of us who dislike being that ignorant, it's important to understand that information symmetry is one of the defining requirements for a free market. So *by definition* allowing this necessarily regulates an inherently unfree market and a substantially skewed playing field.
No, you are wrong here. Information symmetry is not a requirement of a free market. For example, here's the Wikipedia definition:
A free market is a market in which there is no economic intervention and regulation by the state, except to enforce private contracts and the ownership of property.
The definition happens to be consistent with the other definitions I googled up.
That's it. Nothing about information symmetry. And there's a very good reason why. In a market, you almost never have anything close to information symmetry. The only real world example I can think of is poker with no hidden or common cards (I think it's a stud poker variant) and betting after dealing out another card (well, assuming you consider money-based betting games where all money changes hands between players a kind of market, which I do).
Yeah, because the stock market crash of 2008 is so two years ago.
Any industry at 35 to 1 (Bear Stearns) or 50 to 1 (Fannie Mae, Freddie Mac) leverage is going to crash sooner or later. I give an example with pizza makers. It had nothing to do with HFT.