Did someone try to steal Goldman Sachs’ secret sauce (source code)?

[staunch]

Don't forget that Goldman has every incentive in the world to hype the importance of the code, so that they can use the FBI to punish this guy. This almost certainly could have been handled with a lawsuit.

Surely they've had people quit to work for competitors in the past. People who knew exactly how their code and current strategies operated. All this guy did was actually copy the code, which is clearly IP infringement, but not necessarily so much more damaging in practical terms.

Don't underestimate the vindictiveness and competitiveness of these financial guys.

[smanek]

I don't know if they want to hype it that much. They are a publicly traded and looking unnecessarily weak could cause a huge unwarranted dip in their market cap (which they have a fiduciary responsibility to prevent).

[bsaunder]

Perhaps you are undervaluing the practical worth of this code.

[dandelany]

According to the NYSE's program trading report:

http://www.nyse.com/pdfs/PT06.15.09.pdf

Program (or quant) trading accounted for 40.4% of all NYSE trading volume during the week of 6/15 - 6/19. Goldman's program accounted for the more of this than any other firm, almost 1.2 billion shares, or 20.6% of all program trades. Ostensibly, this guy made off with the algos responsible for (.206 * .404 =) 8.3% of all NYSE trades. It's quite possible this is the world's most valuable source code. There are lots of people claiming that the code is useless without their infrastructure, but knowing exactly how GS makes their trading decisions allows anyone who holds the information to engage in front-running, or set traps for them by pushing stock prices one way or the other in order to trigger their system to buy or sell.

Even stranger, the report for the following week:

http://www.nyse.com/pdfs/PT06.22-06.26.pdf

shows an incredible increase in quant trading share, making up 48.6% of all NYSE trades, but Goldman isn't even on the list (after leading it the previous week). NYSE claims this is an error:

http://zerohedge.blogspot.com/2009/07/new-york-stock-exchang...

Surprisingly, GS is up 2% on the day.

http://www.google.com/finance?q=GS

Something majorly fishy is going on.

[hachiya]

Further commentary at: http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi...

  > Major developing story: Matt Goldstein over at Reuters may have just
  > broken a story that could spell doom for if not the entire Goldman
  > Sachs program trading group, then at least those who deal with "low
  > latency (microseconds) event-driven market data processing,
  > strategy, and order submissions." Visions of swirling, gray storm
  > clouds over Goldman's SLP and hi-fi traders begin to form.

[notaddicted]

There is an decent comment speculating on why/how as well http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi...

[nopassrecover]

Sounds like an excuse to fire a department they can no longer afford.

[ShabbyDoo]

Here's what's not clear to me... Was the code simply a low-latency platform for making arbitrary automated trading decisions, or did it include trading strategies as well? hachiya's link suggests that the major value was the microsecond latency of the platform. If that's the secret sauce, I would think it could be replicated without resorting to espionage.

[profquail]

It's really both. Data comes in from various sources with low latency (you get the data right as trades happen, not the 15-minute delay you'd get at Yahoo Finance or something), then the system runs the data through various trading models they've developed and makes trades automatically.

Once a competitor gets their hands on your model, you might as well trash it, since they could use it against you; and places like GS spend BILLIONS on their models, so if this guy really got all (or even just some) of their source code out, the firm is going to take a big hit, and it's not just going to be a short term bump in the road either.

[zandorg]

Codes? The plural for 'code' is 'code' not 'codes'!

I can't believe Reuters is talking like a warez kid.

[gjm11]

I've quite frequently seen "codes" meaning "bits of code" in the context of numerical analysis. I think Reuters is talking like an academic scientist rather than like a warez kid.

(It makes me cringe too, though.)

[gaius]

Codes is the normal term in serious numerical computing. Fluid dynamics, finite element, etc people say this all the time.

[cvg]

Isn't this the British English version of code? I think I've seen it elsewhere in British press.

[ShabbyDoo]

>at that time earning $400,000 annually

I really, really need to leave the Midwest. He was basically a dev lead?

[gaius]

A "quant" is a trader who writes his own trading software. It's easier for them to do this than to write a spec for someone else, especially since it's constantly being tweaked and tuned, and the full-time programmers in a bank build tools and infrastructure, they don't trade themselves.

[wglb]

There are serious jobs in Chicago in the financial sector.

[bwd]

He doesn't appear to be a quant, based on his linkedin profile. Looks like he had a telecom background, so he was probably working on the architecture of their co-located trading platform. In the automated trading world, co-location means putting your machines at the exchange to reduce the latency of receiving market data and entering orders. For a high frequency strategy (i.e. tens or hundreds of thousands of trades per day), these improvements can really increase profits, and there is a huge arms race under way in industry to get the lowest latency.

[dangoldin]

That was probably before bonus too.

[andrewljohnson]

Jeez, you'd have to be a fool to bet money on GS's software :)