Slashdot Mirror
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?"
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.
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.
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.
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.