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."

Comments

Shouldn't be legal to use in the first place.

[tragedy]

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.

Re:Shouldn't be legal to use in the first place.

[maroberts]

If you want to finance your retirement or your childs education, you don't need to sell shares every 5 seconds, so liquidity means little in this regard. It would not be the end of the world having to wait a week or two for money for such purposes.

Re:Shouldn't be legal to use in the first place.

[Anonymous Coward]

HFT PROVIDES NO LIQUIDITY DURING A LIQUIDITY CRISIS!!! one would think we would have learned this form the May 5 micro crash.
holy fucking shit get out from under your rock. the HTF algos are programmed to turn OFF any time Liquidity is really needed. Your ignorance to think firms would provide liquidity during a crisis shows you have no understanding for a corporations value in surviving and making a profit.

http://www.zerohedge.com/news/example-hft-liquidity-10-bid-ask-spread-14-stock

http://www.zerohedge.com/article/all-you-need-know-about-hft-sell-everything-and-shutdown

http://www.zerohedge.com/article/60-minutes-brings-hft-mainstream-cftc-refutes-hft-liquidity-provisioning-argument
  "HFTs traded over 1,455,000 contracts, accounting for almost a third of total trading volume on that day. Yet, net holdings of HFTs fluctuated around zero so rapidly that they rarely held more than 3,000 contracts long or short on that day." Said otherwise, Liquidity-to-Volume ratio: 0.00206%.

also it a crime to trade against the HFT machine so it really is a rigged casino.

for all you math lovers out there. here an htf algo gone wild with pretty charts as it works to destroy price discovery:
http://www.zerohedge.com/article/story-berserk-nat-gas-algo-just-got-really-strange (last chart is the best)

http://www.zerohedge.com/article/another-algo-gone-wild (price is $2.50 and $8.50 depending on where you ask and locations are seperated by about 12 milliseconds of travel time) there goes price discovery and liquidity.

here come of the best math porn i scene in a while.
http://www.zerohedge.com/article/its-not-market-its-hft-crop-circle-crime-scene-further-evidence-quote-stuffing-manipulation-

Re:Shouldn't be legal to use in the first place.

[Tuan121]

It really doesn't surprise me what gets modded "insightful" here these days.

Liquidity has no place in an investment system you say? So you mean, if you have some shares of Apple and you want to sell them, you should have to try to shop around to sell them and pay a large transaction cost just to get rid of something that has a market value? And how is that market value determined if there are not people actively trading the product? You can say a widget is worth $100 million, but until someone actually buys it for that price it's just imaginary.

And speculative investing is not good you say because it's gambling. Hmm, so what is buying shares of a new start-up company then, this would be investing, but not gambling?? I don't think you understand that both are in many ways the same thing. Investing IS gambling in every single way.

90% reduction

[alexander_686]

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

Re:90% reduction

[Anonymous Coward]

Those fees are only a problem if you don't plan to hold on to your stock very long: after a few years or more of capital value change plus dividends, it's insignificant.

What's that you say? You like to buy and sell on a timeframe of weeks? Well, that's speculation not investment, and we need less of that. I'm happy to have that anti-speculation incentive built-in.

Re:90% reduction

[barc0001]

I don't think you understand how this works. The high frequency trading is literally placing thousands of orders milliseconds apart and 98% of the orders don't get filled or get rescinded, basically it's like spam. Algorithmic trading causes values to adjust outside of normal market forces, and there's strong suspicion that it was the cause of the 2010 Flash Crash.

Re:90% reduction

[boorack]

You assume that they provide liquidity which is not true with HFT and that $.01 a share cheap which is also not the case for HFT traders.

Regarding liquidity, HFT provides an illusion of liquidity. When a bunch of computers banging, say, 500 shares between themselves over and over again 500 times a day will generate 250000 volume but this does not mean that market is so deep. You see, there are only 500 shares in use. When some big, traditional (institutional?) investor fooled by this artificially high volume decides to sell 100000 shares, it will impact market much higher than if that 250000 (or even half of that) was a real volume. To make thing worse, computers trading these shares will propably detect and try to take of this incurring even more losses to investor (potential gains for HFT trader) and potentially cause some form of flash crash. In the end, traditional investors typically get much worse off with HFT than without HFT, even seeing [lack of] real volume.

Regarding $0.01 - remember that this is $0.01 times billions. It results with hundreds of millions of dollars getting sucked off market by HFT operators instead of being directed into actual, productive investments (thing that stock markets are supposed to be created for). That this money is sucked off penny by penny does not matter. It's still real investments deprived of hundreds of millions of dollars every day by Goldman Sachs and its cronies.

In my opinion HFT is a fraud, nothing more. The fact that it's (still) legal is just a sign how corrupt whole system is.

Re:90% reduction

[Zak3056]

That is the problem with the entire stock trading mentality. Stocks are viewed as commodity that makes the investor rich, no one views them as investing a company that will succeed with the investor's money.

Given that so many companies don't pay dividends, I can't help but wonder what "investors" are actually investing in? I mean, I'll grant it's not true across the board, but pick any tech company, and if they're making money, it's for the sole purpose of sticking it in the bank. Apple has, what, $100B in the bank? To what end? It's not hard to see why we have this mentality, and why our market is all about finding a bigger idiot.

FWIW, my money says that one day we're going to find that something like the Teamster's pension scandal has happened again.

Re:90% reduction

[maple_shaft]

But as was already said, this is speculative trading and NOT an investment. If you are a small time investor and are trying to engage in speculative trading then you are just asking to be bilked of your money. You don't overhear the chatter on the trading floor. You don't see breaking news happening before it goes public. The day traders and hedge funds will eat your lunch. You might as well be playing blackjack at the casino.

If you are a small time investor you are much better off studying earnings reports and making long term investment choices in blue chip stocks that pay dividends than trying to play the big boy games.

Re:90% reduction

[pclminion]

Given that so many companies don't pay dividends, I can't help but wonder what "investors" are actually investing in?

That's like asking, why have money? Money doesn't pay interest on itself, it just sits there, what good is it? The reason you accumulate it is the same reason you would accumulate stock -- you are betting on the proposition that the money (or stock) will provide sufficient value to be exchanged for things you want.

When I hold on to cash, what I'm doing is betting that prices will go down. If I believe prices will go up I convert that money to something else. So I have a hard time understanding why buying and selling stock simply to profit from movement in price, is any different from the decision to hold money or spend it based on current trends of inflation.

Re:90% reduction

[Anonymous Coward]

You can exit your position and recover your original investment, just not any profit you may have gained in your short term scenario. Of course, your contrived example of the CEO dying and the company tanking probably means that you lost money anyway and since you only pay capital gains tax on gains, then your scenario would play out the same in today's market also.

Re:In essence

[alen]

he didn't take a log, he took the algorith and source code that took years to develop and which was meant to be used only internally

this is like a Moto engineer taking a new antenna or radio noise reduction algorithm and going to apple with it hoping to get paid $$$$$

Re:In essence

[maroberts]

If you produce a product as part of work for hire and then steal that code and sell it on to a third party, it's still a form of theft.

It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise; I'm surprised he didn't do so. Once you know how something is done, you have solved the hard part and can spout a new set of code out of your head with little difficulty. Often producing a product the second time means you can do things better and faster anyway.

There's a lot of blurring between personal and work computers nowadays, which does mean you may have a copy of stuff you have developed on your home PC, and that can make things awkward. But if you do mean to sell something you've worked on to another party, you'd damn well better make sure that right is in your contract.

90% reduction? Who cares? Gamblers!

[s-whs]

Unless you count a 90% reduction in trading costs as âoenothingâ.

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

(- 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.

Reproducing algorithms is dangerous ...

[perpenso]

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.