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Former Goldman Programmer's Conviction Overturned
i_want_you_to_throw_ writes "The legal woes will soon be over for Sergey Aleynikov, a former Goldman Sachs Group computer programmer who had been convicted of stealing part of the Wall Street bank's high-frequency trading code. A federal appeals court overturned his conviction and recommended acquittal. We previously discussed this story when he was sentenced to 97 months in prison. It will be interesting to see their reasoning (an opinion is to be released) as well as what this may mean for other programmers developing high frequency trading code."
High frequency trading code shouldn't be legal to use for trading in the first place. It doesn't provide anything useful ("liquidity" has no place in an investment system, it's only good for speculative investing, which is just gambling), and simply parasitically leaches from the market and destabilizes it. The people the programmer was working for are the ones who should be convicted.
He took a copy of the code of an internal tool, not something that they sell to customers. Would you really consider it evil to save a copy of your log viewer, for example? The law was intended to protect sold products.
Unless you count a 90% reduction in trading costs as “nothing”.
Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.
I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days
his lawyers convinced an appeals court that coding for a system meant to buy and sell stock across state and international borders wasn't "interstate commerce"
I suspect congress is going to amend this law soon
If you read TFA looks you find that, in their eagerness to get the maximum news and sentence, the prosecution chose the wrong statute to charge him under. If they had just treated this like any other case of illegally copying an employer's code and not tried to get cute with the "interstate commerce" bit, they would have had a rock-solid conviction.
(- infinite, moronic)
Who gives a damn what percentage some trader wanted? For one it's all mostly automated so fees should be very low now, and for another, if you don't need to/want to buy/sell frequently then the small charges are a non issue. They are only an issue if you want to trade a lot because you want to gamble on changes in values of stock. So the original poster was right, high freqeuncy trading is valueless and should be disallowed. It's gambling, and not just simple gambling, but gambling that destabilizes economies.
But it does matter even for low cost long term investing..
Let say you are investing for the long haul in low fee index funds (Mutual for ETF). Take a look at their cost structure for the past 20 years. The annual expense ratio has dropped from 1% to less than .1%. If you tear apart the public disclosures you will see that about 20% of that drop comes from explicate trading costs.
My gut instinct says that another 30% can be attributed to implicit costs.
You know, when I sue someone for murder, I don't sue the knife, I sue the dude holding the knife.
If they convicted everyone there who was a thief, who would be left?
SJW: Someone who has run out of real oppression, and has to fake it.
that Goldman sachs.
It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise
Only the general knowledge in his head. Knowledge that represented trade secrets of his past employer are still protected and may not be shared.
"liquidity" has no place in an investment system, it's only good for speculative investing
I almost fell off my chair. Liquidity is extremely important to both "speculating" AND "investing" (which is really just long-term speculation).
Let's go back in time to late July of last year, and tell all of those long-term "investors" tripping over themsleves to sell that liquidity has no place in their strategy. You'd be lucky to get a scowl instead a solid punch in the face, even from the ones who DID manage to avoid huge losses.
I agree there is nothing illegal about walking out and reproducing algorithms you have learned.
Nope. If those algorithms represent the trade secrets of your former employer then it is illegal to disclose them. For example **undisclosed** details on when to bid and how much to bid given market conditions.
General knowledge is transportable. How to optimize C and assembly code, how to optimize network communications, **publicly available** details on when to bid and how much to bid given market conditions.
That old hobo, Bob, who asks for change at the bear and bull statue, never actually stole anything.
Everybody else would be in prison.
Totally agree. Lots of programmers also work from home, which means there's latent copies of code floating around as well. Is that theft?
When your employment contract ends and you fail to turn over or destroy the copies, as most contracts state, yes.
I once worked on a complicated solo project at one employer. We separated on good terms and there might be the occasional odd question regarding this project. I would need the source code as reference. I asked for and received a letter from the VP of engineering to hang on to a copy for such purposes. If there is a legit reason getting permission to hang on to a copy is not unheard of.
If there is no legit reason, well I understand very well that we programmers are possessive of our creations. However when we work for someone else there is a tradeoff. We trade the right to our creation for a paycheck, to be immune from the business risk of the company. Whether the stock was up or down I got paid for every hour I worked. Where the company was making money or losing money I got paid for every hour I worked.
The Second Circuit is TELLING, not asking, the lower court to enter a judgment of acquittal. The feds only hope is a successful supreme court apppeal.
Or on a Casio Boat like in Missouri
Casio are running gambling boats?! Makes a change from their usual electronic devices, I guess...
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
I could be wrong, but it seems to me the flash crash was caused by a corner case which caused one side of the algorithmic liquidity to seize up, while the other side spun its wheels wildly. (It was assuming cases based on data that did not reflect reality). You can't increase liquidity "one way". Each transaction must have a buyer and a seller. For HFT to really get out of hand, you need it on both sides of many, many transactions.
I won't join Slashcott. OTOH, If Beta goes live, I just won't be back until it's fixed. Sorry Dice.
That is, the previous post does not say that people putting money into the stock market are not investors but instead, speculators, because they are bad people or something.
The reason for the difference is that most of the shares traded are not issued as new stock by any company.
This means that when you buy the stock, you put money into the hands of another investor, not into the hands of the company.
Of course a company that is willing to issue new shares will profit from a good history, but since issuing new shares dilutes the share of the investors in the company, this is rarely done and usually only when the outlook for the company is bleak.
You can of course argue that the existence of the market helps the REAL investors who found new companies, but this does not invalidate the argument:
Next time you buy a share of a "old" company, don't think that you just helped that company.
Hey don't blame me, IANAB
HFT is there to front run orders, kick stops, stuff quotes and so on. The world got along just fine without it.
Deleted
Are you advertizing for zerohedge?
also it a crime to trade against the HFT machine so it really is a rigged casino.
This caught my attention. It's clearly not a whole truth, but it has the suspicious look of a half-truth. Can anyone elucidate?
I won't join Slashcott. OTOH, If Beta goes live, I just won't be back until it's fixed. Sorry Dice.
If they convicted everyone there who was a thief, who would be left?
It's only illegal if you get caught.
You are mistaken. At the heart of your misunderstanding is the fact that trade secrets are a legally defined and protected form of intellectual property. The protection of trade secrets goes back centuries. Trade secrets have to meet a certain legal criteria and the company has to take steps to prevent disclosure to the public, employees (current and former) are legally obliged to respect the owner's rights. There is no expiration, as long as the company maintains the secret it is protected.
http://en.wikipedia.org/wiki/Trade_secrets
The basic idea behind it all is that both the company and the employee have rights. Sometimes these rights are in conflict. In the case of anti-compete clauses the courts have ruled that the employee's right to move to another job is the stronger right. However with respect to trade secrets the courts have ruled that the company's right is the stronger, the company shared a secret that the employee could not have discovered on his own and therefore it should remain a secret.
Now if the company trains you in industry specific knowledge that is general known or obtainable outside of the company, regardless of how valuable or specialized the training is, that is not a trade secret and you are perfectly free to take that knowledge and apply it elsewhere.
I see it as a textbook man in the middle attack.
Alice wants to buy shares. Bob is selling them. Mallory is listening and hears that Alice is buying shares from Bob, so buy all but the first few from Bob and sells them at a markup to Alice.
In other contexts it's considered criminal behaviour.
Back before the Internet(can't find a ref.), in the late 80's, there was an excellent robo-trading system, that was eventually sold to a number of trading houses. The system worked very well for the company that developed the system, but after many versions of the system where competing against each other it all fell apart, resulting in a mini-crash... Laws where passed, and lessons learned.
By the mid 2000, all these lessons where no longer remembered, and the laws updated to reflect this convent amnesia, but the nature of dynamic system has not changed, and any company that profits from these systems, almost exclusively use programmers who understand this concept...
As a programmer that has lots of experience with agents and complex dynamic systems, I can tell you that for these systems to work they all have to be individual, otherwise they "feedback" on each other, and don't preform as expected.
Not to mention that they can be easily exploited when you know the internal decision making processes within them.
Goldman Sachs is only concerned about protecting it's advantage; individual and unknown code/heuristics being there advantage...
Personally I'm surprised they(GS) would ever let one of there programmers go, especially one that has worked on a system still in use.
If GS's analysis of there liabilities, in relation to there employees, is so far out of kilter, you've got to wonder about their broader investment decisions too...
Still, it's good to see the white-wash isn't sticking.
The technical term in finance is Front Running.
And yes, if Mallory knows and acts on Alcie’s or Bob’s action then it illegal.
But if you are just guessing then it’s not – and sometimes that’s just fine.
A example might be FaceBook. About 3 to 6 (the normal delay after a stock goes IPO to be added to a S&P Index) months after to goes public it may be added to the S&P index.
At that point, ever single S&P fund is going to have to buy gobs of the stock, driving up it’s price. (And because their index funds, they can’t buy it ahead of the announcement and they must buy it after.) (Side note, Since FB is only going to float about 5% of it’s shares it’s going to have major float issues – so it may take a while before it gets to the S&P). So a lot of Hedge Funds are going to stock up on the stock before hoping to cash in..
Zerohedge is fascinating but they are nut jobs, full of doomsaying prophecies, hyperbole and conspiracy theories. It's well worth spending some time reading the site, especially the reader comments which are even more entertaining than the stories.