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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?"
I could see the closed doors. If the guy says he didn't, and then they start pulling up source code, then I would personally not be happy if that source code was just shown to the world if I was working on a closed source project
The world is how you make it
Not that I approve of HFT in any way shape or form. But this guy is going to be talking about the system that allows the to have an edge over their competitors. If I were in that company's position, I'd very much like that testimony to remain sealed as well.
-Rick
"Most people in the U.S. wouldn't know they live in a tyrannical state if it walked up and grabbed their junk." - MyFirs
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?
No... then they’d actually have to fix it...
Alexander Peter Kristopeit bought his basement from his mommy for one dollar.
I see this in the same light as google. What if google was asked to present their "secret algorithm" in open court so that counsel could better understand what they have been doing with private information? I know a lot of people who would love to hear that testimony.
Flexible bare-metal recovery for Linux/UNIX
but something seems unexpected about this level of concern by the Justice Department.
Obviously they know that "pay no attention to the computer behind the curtain" isn''t going to cut it. One suspects that the government is less interested in protecting Goldman's trade secrets than in making sure the public doesn't find out just how badly computerized trading has made it impossible for normal people to compete in todays stock market.
Or maybe the massive drop off in political contributions from Wall Street following all the tar and feathering they have been getting from the current administration (far beyond the taring and feathering that they DO deserve) has gotten some peoples attention and they really are concerned with their ability to fund raise, I mean the ability of companies not to be unjustifiably victimized just because they happen to be *gasp* profitable.
-jon
Normally, I'd nitpick about how the Federal Prosecutors asked for this and not Goldman's lawyers. However, with the political and economic landscape being what they are, federal prosecutors have really become Goldman's lawyers.
My postings are informational and does not constitute legal advice. Act on it at your risk.
How is this type of computer system that trades before anyone else even CAN considered fair or even legal? You get to control and possibly even direct the market with this tool.
This is a monopoly on the stock market, WAY too much power in the hands of one company.
He who knows best knows how little he knows. - Thomas Jefferson
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.
Just do not allow those firms to act as a market maker, broker, banker and a trader at the same time.
Those firms should only be allowed to act as one part of the system and be restricted from taking advantage of acting as a multi-role entity by the law.
OK, for all you whiners about the evils of software patents, this is what you get - secret algorithms.
US law used to disfavor trade secrets, encouraging patents. Patents have a limited life, and disclose the technology. Trade secrets have a potentially unlimited life, and no disclosure requirement.
Note that in dealing with Microsoft's technology, patents were a minor headache for interoperability, but secret APIs have been a huge obstacle to interoperability.
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.
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.
Why is HFT legal but beating them at their own game is illegal? http://news.slashdot.org/story/10/10/15/0139217/Norwegian-Day-Traders-Convicted-For-Manipulating-Computer-Trading-System
Oops, I should have read farther. What the report actually says that the HFT algorithms caused increase market volume and started a positive-feedback loop with the sell-order script. This caused a "liquidity crisis" (all the algorithms were trying to sell and nobody was buying) so the price crashed. As the price went down, the various HFTs were swapping shorts back and forth to take advantage of the falling prices, but couldn't offload the total amount of sell orders, so the exchange circuit breaker kicked in. After trading resumed, the prices went back to normal, but the stupid sell script kept going and there was a second liquidity crisis as the humans in the loop said WTF and stopped trading.
So their official conclusion was that HFT both helped cause and helped solve the crisis and it was the stupid sell script that started the whole thing.
Hyperfast trading is a window into the future (a few milliseconds into the future, but a window into the future nonetheless). Imagine you could go back in time and pick stocks . . .. That's what those sons of bitches are doing--completely lawfully thanks to elected officials who believe in "deregulation" . . .
The effect is a tax--a Wall Street tax--on every transaction they involve themselves in. They get to drive the price up before you buy--and take a little slice for themselves.
Yeah, small government is going to protect us from predatory monsters like Goldman Sachs. Yeah, whatever.
pick a frequency, any frequency: 100 millseconds, 3 seconds, 1 second... all trades are queued and batched in those intervals, nothing faster. so it is not possible to game the system with more hardware with crazier algorithms and faster connections to wall street
otherwise you simply have domination of the entire stock market by a few wealthy players. small investors will leave, or continually suffer an invisible tax on every one of their trades
its a classic case of the largest players in a marketplace abusing natural imperfections in the market to their advantage. the big lie of libertarianism is that markets, left to themselves, are egalitarian and self-regulating. bullshit: markplaces, left to themselves, are stories of abuse by its largest players at the expense of smaller players, in dozens of ways: collusion, price fixing, flooding, etc...
this is a simple truth you need to understand: for the sake of fair and free and equal marketplaces in this world, you need continual "intrusive" (defined as intrusive bureaucracy by potential abusers) government regulation. in the case of the stock market, the solution is simple: a "heartbeat"
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
Q? Is that you?
http://memory-alpha.org/wiki/All_Good_Things
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else. Given that you, personally, are more likely to get hit by a meteor and then struck by lightning than you are to accumulate your own vast wealth, and given that you, personally, benefit immensely from living in a democratic civil society, you, personally, should be against vast disparities in wealth. This applies to the 99.99 percent of people who will never accumulate more than a million in assets in their lifetime. Why let that .01 percent make the rules? They are making the rules, but you are the majority, meaning, you are letting them make the rules. You don't have to let them do that.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
It is about the fact that Goldman Sachs had, and continues to have, network taps that are closer to the exchange computers than anybody else. They have latency advantages of up to .2ms on trades, which is a gigantic window if they can cache other orders and jam theirs into the front.
Others have pointed out that Goldman Sachs record is statistically IMPOSSIBLE. See Seeking Alpha here:
http://seekingalpha.com/article/154083-goldman-is-its-trading-performance-statistically-reasonable?source=commenter
Also, the exchanges have seen rashes of NOP orders placed. Fake trades designed to jam the queues to create artificial windows of opportunity to front-run big market movements. Goldman Sachs is probably (fuck probably, they are certainly) gaming NBBO and pocketing the difference millions of times a day.
For the less market knowledgeable out there (basically, most of Slashdot), they are running the scam Richard Pryor did in Superman, or in Office Space. They are skimming pennies off the market by seeing a trade ahead of it hitting the exchange, then jamming NOP orders in while they calculate and move a trade ahead of that to piggyback on the effect of the larger trade on share price.
Denninger has been all over this story:
http://market-ticker.org/akcs-www?singlepost=2139302
Sergey's code probably contains stuff in it that jams NOP orders into the system, or shows how it using something simple like the dragon tools or plain ol' tcpdump to inspect orders as they fly-by on the tap. In fact, Sergey's code may PROVE beyond a reasonable doubt that Goldman Sachs is tapping the NYSE Exchange computers ethernet feeds. That would be a bombshell of the first order.
Like I said, look beyond the technical press and look at the financial press. Goldman Sachs is coming to the poker table with a marked deck and it can be statistically proven.
HFT is a smoke screen. The frequency of trading is moot. if I can look at the world's trades before they hit the exchange and process and effect NBBO, I now have a license to print money. Doing it high frequency just makes the printing press run faster.
I'm sure this is all about PR and has nothing to do with trade secrets. "Government" Sachs isn't terribly popular right now and they really would like to maintain a low profile.
And I'm sure part of the defendant's strategy is to shine particularly bright lights on directives from Goldman management about HFT and how they wanted to control/manipulate markets.
This kind of testimony in open court would be a PR disaster for Goldman and they know it. The last thing they want these days is another "Evil" tag.
however,
I guess Goldman Sachs' trade secrets are a higher value...
There is no window to the future. If high FREQUENCY trading was like looking into the future, the algorithm would be worthless because anyone could easily do it with the right hardware.
The truth is, it's very difficult to predict the future with any degree of certainty at even the smallest time intervals. Imagine this scenario:
GOOG, BID: 649 ASK: 650
Now, someone puts an order to sell at 649.5, the HFT sees it, and buys, and puts the stock back on the market for 650. Now, someone sells a large amount of shares at a 645 limit, and all of the 645-649 bids go through. Now stock is at:
GOOG, BID: 645, ASK:650
Now, selling to the highest bidder would mean taking a $5/share loss. What should the HFT do?
Now, you might be thinking an HFT would have just sold before all of those trades went through, and it would have only lost 1 or 2 dollars. You would probably be right, but the real question is where do you draw the line. If you sold every time the bid dropped at all, you would end up losing more money than you make. The truth is, with all the competing HFT's out there, It's a lot easier to lose money than it is to make money.
A good HFT is effective at turning many small gains into big profits. The trick is making sure those are small gains adding up, not small losses. If another company were to see Goldman's algorithm, they could not only steal their strategies, but they could engineer situations that would trick the Goldman bot into selling at a loss, netting a huge profit for the competitor.
Perhaps because the last few times we've seen political action to enforce a relative parity of wealth, we've seen Russia and China become places that nearly no American would want to live. Some of this is due to propaganda (zomg, Socialism!), and some of it is due to the massively authoritarian nightmares and abuses of human rights that we've seen them devolve into.
It's possible that our belief that it's better here is a delusion. I doubt that, though.
Perhaps because the last few times we've seen political action to enforce a relative parity of wealth, we've seen Russia and China
Hint, Russia and China are doing it wrong. Hell, their income inequality is barely any better than ours. Fact is you can lower income inequality through policy without becoming a totalitarian hell hole. Look at central Europe.
Give me Classic Slashdot or give me death!
Perhaps because the last few times we've seen political action to enforce a relative parity of wealth, we've seen Russia and China become places that nearly no American would want to live.
Or if you were concerned for honest and accurate discussion rather than panty twisting fear mongering, you might have pointed out America's recent much higher marginal tax rate which created the America of a large middle class which most people today see as what America is.
Because, you know, there is a vast range of middle ground between the far fringe right of totalitarian rule by the elite where we are now and the far fringe left of Stalinism.. The chunk in the middle of that space is known as "Liberalism' or "the fundamental basis of America".
So, no you're pretty much as wrong as it's possible to be. A few attempts at enforcing a relative parity of wealth went overboard. Most work well and create far superior societies than those of either extreme and we have the examples from our own country to point to to demonstrate that point absolutely.
Thanks for playing though. If this were "spout crazy blatantly false reactionary nonsense" you would have done well.
It's not though, it's we the decent people of this country are sick of you idiotic extremist wack jobs spouting idiotic bullshit that weakens the entire country for the benefit of a few sick fucks.
This sure sounds like electronic insider trading. As soon as the numbers are posted on the exchange computers, Goldman-Sachs buys,sells or whatever before anyone else can. It will remain legal until it isn't.
The mind conceives, the body achieves, the spirit manifests.
So someone that comes up with a damn good idea that improves lives worldwide shouldn't be allowed to be comfortable in life for his/her work? You will never join that group because you hate them. Not all wealth is accumulated through greed, corruption, and filth; frugality and genuine good ideas can accomplish the same. Personally speaking, I will take great pleasure in joining the millionaire club at some point down the road: you can hate me all you want, I won't care.
What does this say about our financial institutions?
Well, I know what it says to me:
1) Convert 401K->Gold, Silver, Commodities.
2) Wall Street gets a dime of my money when hell freezes over.
3) Sine they control the courts, to conceal their criminal activies, it suggests the entire government is corrupt beyond the use of simple voting to change _anything_.
Pretty soon, _anything_ will look like a terrorist.
4) I keep about $500 in checking to pay bills. The rest of the cash is in my home, which when the whole freaking thing ends up collapsing, I will have access to my money.
Because when they open the banks up, it will be worth half of what it was afterwards.
5) It also tells me we no longer live in a Republic but a fascist state. We all know where this is going to go:
a) It starts with social unrest, and the government declaring the poor, the unemployed and other "undesirables" terrorists because they join together and protest the corruption.
b) Government staging attacks to divert attention, or play the blame game on the undesirables....like the remaining middle eastern and Asian countries not under IMF monetary control.
(Essentially if your currency is not controlled by the IMF your an enemy of the state and a terrorist.)
c) Marshall law as the corruption becomes so rampant, the currency becomes worthless.
d) Take your pick on this one, either the government historically fires up the ovens to burn all of the bodies as 10's of millions die or it declares war...World War and tries to take the rest of the world down to divert public attention to its corrupt activities.
(10 Years later, and guys dressed in sandles in caves are somehow going to launch a nuke way over here....Oh...and yeah, they _still_ can't find bin Laden, and never will because the military industrial complex is making way too much dough to find him.)
-Hack
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
You don't think they deserve due process? You don't think any of them might have legitimately acquired their wealth?
This is the core reason why nothing will change in this country. If everyone thinks they will get to the top, nobody will want to put any effort into changing the system. We have a majority of the population that is jumping up and down for some of the table scraps, but they will never, ever become part of the stupid-elite. The fact that so many people are delusional enough to assume that money equals happiness proves that we have to many people that have their priorities mixed up. Money isnt going to fix your life its only going to complicate the many problems you already have that you are not dealing with on a personal level and those problems will be transferred to innocent people because you have money and dont know how to use it. I dont hate you for it. I feel sad for you wasting your life for something that matters little in the grand scheme of things. :(
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else. Given that you, personally, are more likely to get hit by a meteor and then struck by lightning than you are to accumulate your own vast wealth, and given that you, personally, benefit immensely from living in a democratic civil society, you, personally, should be against vast disparities in wealth. This applies to the 99.99 percent of people who will never accumulate more than a million in assets in their lifetime. Why let that .01 percent make the rules? They are making the rules, but you are the majority, meaning, you are letting them make the rules. You don't have to let them do that.
Most people who accumulate a million bucks are fairly ordinary, not the type you tend to hear about on television. Middle aged people who've worked their whole lives and spent frugally.
You're right that people ought to be under the same law, but what makes you think some people are above the law? We regularly hear about CEOs and other types who end up in jail. Apparently really nice jails, but jails nonetheless. Sure, money makes some people more powerful than others, but mostly you have to stay within the law to make a bunch of money.
The real danger is that by trying to right the wrongs, you create a socialist dystopia that's meant to be fair, but isn't. Hand out welfare payments meant for people who can't find a job, and find that suddenly the working poor are worse off than the nonworking. You also end up relying on the state to plan everything, make every decision. Guess what, people who work for the government are fallible too.
Judging by what I've read about what this code does, I don't think it's actually that clever. GS are cleverly disguising their lack of cleverness, in order to keep the aura that surrounds the firm.
-This code is meant to be super-fast. There's only so many financial strategies that make sense when you have hardly any time to think about what to do.
-If he was working on something really profitable, they would not have left him on a compensation scheme that he would voluntarily leave. Once you've made a few accumulated bucks, they'll promise you more, with the proviso that you're forfeiting it if you go. I know guys in the industry who are stuck in a job they no longer enjoy basically because they're waiting for a bigger and bigger payout.
-It's useful having source code, but if you're a competent coder, you know what you wrote, and how you wrote it. It might save you some time to have the code, but you basically have it in your head.
-Obviously, he might have been sneaking a peek at someone else's code that was meant to work together with his. If it was really so important to keep it secret, there would have been ways to keep it secret. Segregate the guys, only letting them connect each other's code via an interface. Various other security methods that other people know better than me...
-GS most likely were not the only people to think of whatever financial strategy was behind this. The people in this field all come from similar backgrounds, both academic and professional. They think so alike it caused the Global Alpha blip (along with the rest of the statarbs that tanked in 07/08). They don't need to talk to each other to have the same idea.
You can sign up with Equinix, who run a number of datacentres at which various exchanges are colocated. They'll do the racking and cabling, but you have to buy the machines and write the software yourself.
You don't have to let them do that.
How do I "don't let them do that?"
What are my legal, efficient means to initiate change and reverse the inertia of corrupt lawmaking?
(I hope you don't say "voting" and mean it seriously)
Two carpenters are at work, one has a manual hammer, the other a nail gun. Which one finishes first and gets to go on to the next job?
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else.
You mean that *corruption* is incompatible with democracy and civil society. There's no reason, other than corrupt and greedy public servants, why the wealthy would play by a completely different set of rules than everyone else.
Neither Russia nor China had any interest in enforcing a relative parity of wealth. This is absurdly obvious with even a cursory look at rich party members vs. the average person. But of course, both Russia and China are trotted out by the existing ruling class to scare the masses against change.
Mind you, I am vehemently opposed to forcing wealth parity. Achievement and accompanying reward must be driven by an individual's own merits and drive, and nothing more. I do realize that sadly, in today's society, that's just as much of a fantasy as a free market, or forced wealth parity, but I digress. :p
please stop saying that goldman, morgan stanley, boa, jpm chase, etc, somehow have 'their own money'. without TARP, none of those companies would exist. they all took money either directly, or one-degree of separation, from the government to keep themselves alive, and living in nice walled communities, and going to nice restaurants for lunch, and having their nice careers and their nice cars and their nice little lives, while millions of other people are moving back with their parents, learning to love ramen, giving up on college, losing their savings, moving to low-rent ghetto apartments full of drug dealers and criminals, etc etc etc.
Yea, must be nice. Still I can't help but wonder how many of those millions of people voted for either Bush or Obama. Sometimes you got to get personally screwed before you see the connection between cause and effect.
Since in the fractional reserve money system (standard in our society) everything comes in the form of a loan that carries an interest and it immediately creates debt, $1!=$1...
Based on this, any large corporation's books must have equations where 1=1+x, where x>0 ... ...
In other words, the world should see what calculates what and how in their system. And why we are at it, let's bring in a few banks for fun, let them explain how their software crunches the numbers
This message has been approved by the pinkie-swear guild.
Why SEC is not protecting genuine Investors from HFT Speculators viz http://en.wikipedia.org/wiki/Pump_and_dump and http://en.wikipedia.org/wiki/Information_asymmetry and http://en.wikipedia.org/wiki/Front_running
I'd like to buy homeland for our 10 million people. http://twitter.com/mahadiga
They are prepared to use flamethrowers.
There are places where the networks are not touching,and there are places where they are-Boeing's Lori Gunter
Or is this another US-only usage?
To have a right to do a thing is not at all the same as to be right in doing it
Socialism does not necessarily involve gulags and show trials, in the UK we managed to introduce a national health service, state pensions and so on without recourse to violence, because the vast majority of people agreed with them.
To have a right to do a thing is not at all the same as to be right in doing it
So someone that comes up with a damn good idea that improves lives worldwide shouldn't be allowed to be comfortable in life for his/her work?
There's a big difference between being comfortable and being a billionaire, you utter twat.
Personally speaking, I will take great pleasure in joining the millionaire club at some point down the road: you can hate me all you want, I won't care
As Chesterton said, to be clever enough to get all that money, one must be stupid enough to want it.
To have a right to do a thing is not at all the same as to be right in doing it
I keep about $500 in checking to pay bills. The rest of the cash is in my home, which when the whole freaking thing ends up collapsing, I will have access to my money
What makes you think your money will be worth anything if everything collapses?
To have a right to do a thing is not at all the same as to be right in doing it
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else.
You mean that *corruption* is incompatible with democracy and civil society. There's no reason, other than corrupt and greedy public servants, why the wealthy would play by a completely different set of rules than everyone else.
Bullshit. If you're a billionaire, and to get into a busy restaurant you tip the owner a thousand dollars, is it just him being corrupt that gets you the preferential treatment?
To have a right to do a thing is not at all the same as to be right in doing it
The whole point of patents is to encourage companies to share their inventions and methods with an ensured monopoly for a period of time and then EVERYONE else can benefit from it. If you keep a trade secret, you are not entitled to any form of protection. If an employee steals Cokes formula then someone else can make Coke. That's the whole point of trade secret vs patent. There should be NO leeway or any special consideration given to those not wanting to reveal trade secrets.
They have what you want, ergo, they make the rules.
What do I want? Equality of opportunity. I don't WANT to make the rules, I want US, all of us, to agree to the rules, together. The same rules for everyone.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Good question. One requiring creative thought and fearless action. There is no one answer, and it is very unlikely any of the real solutions will yield results in a single human lifetime. But that doesn't mean we shouldn't try.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Frugality and genuine good ideas make the rich assholes who steal them from you rich. Show me one scientist or engineer, who was not a rich asshole and primarily a 'businessman' rather than a techy, who got rich from their ideas.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Uh, color me stupid, but what does "notch" mean?
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Programmer of Minecraft, relatively popular but cheap game.
Ah, thanks. I know of Minecraft, but I'm currently addicted to Dwarf Fortress and Minecraft just seemed like DF lite to me.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton