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Prosecutors Request Closed Courtroom For Goldman HFT Programmer's Trial

timothy posted more than 3 years ago | from the sealed-in-carbonite dept.

The Courts 250

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?"

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Money (0)

Anonymous Coward | more than 3 years ago | (#34053364)

It's all about money. Goldman Sachs has big dollars and political connections. This is a result of that. Justice? Not for poor people.

Re:Money (5, Insightful)

spun (1352) | more than 3 years ago | (#34055376)

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.

There is a good chance code will be revealed (5, Insightful)

Stregano (1285764) | more than 3 years ago | (#34053372)

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

Re:There is a good chance code will be revealed (4, Interesting)

Archangel Michael (180766) | more than 3 years ago | (#34053468)

If it is a program, there are assumptions. If those assumptions are false, then the program is exploitable. If the program is exploitable, it will be exploited. If it is exploited, people will lose their shirts while others make a fortune. The rich don't want to be fleeced automatically by computers, they just want to fleece others with computers.

That is all this is.

Re:There is a good chance code will be revealed (0, Flamebait)

khallow (566160) | more than 3 years ago | (#34054262)

If it is a program, there are assumptions. If those assumptions are false, then the program is exploitable. If the program is exploitable, it will be exploited. If it is exploited, people will lose their shirts while others make a fortune. The rich don't want to be fleeced automatically by computers, they just want to fleece others with computers.

And a desire to avoid getting fleeced is bad because?

Also you ignore that revealing code opens wide the doors to extensive competition.

Re:There is a good chance code will be revealed (1)

Archangel Michael (180766) | more than 3 years ago | (#34054508)

There are two golden rules ...

Do unto others as you'd have them do unto you.

The person with the gold rules.

Also, you ignore that our court system NEEDS to be open except for very specific reasons. Keeping "source code" secret isn't one of them. Especially if the source code is part of the prosecution for whatever "crime" was committed.

Re:There is a good chance code will be revealed (2, Insightful)

sumdumass (711423) | more than 3 years ago | (#34054662)

IT will be open eventually, just not until someone is convicted. The court process is not about indirectly punishing someone for being charged, it's about determining innocence or guilt and only then punishing someone if it's appropriate. If there is a conviction, it will all be public. If not, then disclosing the source code and methods does little but harm the programmer.

Re:There is a good chance code will be revealed (1)

mcgrew (92797) | more than 3 years ago | (#34053618)

They cited a federal law to protect owners of trade secrets and a desire not to cause the investment bank to be “re-victimized” through the release of confidential, proprietary trading secrets.

“Any public disclosure of a trade secret poses the substantial risk that the trade secret’s value to its owner will be significantly diminished, if not destroyed outright,” Assistant U.S. Attorney Joseph Facciponti wrote.

I don't understand why trade secrets shoud be protected. Wasn't patent law allowed under the Constitution to prevent just this sort of thing?

Re:There is a good chance code will be revealed (2, Insightful)

ottothecow (600101) | more than 3 years ago | (#34053862)

The issue here is that trade secrets are *not* protected. If they had a patent, then the open doors wouldn't matter since they had already exposed the inner workings in the patent filing.

Trade secrets only stay secret if you keep them that way. This is no different than if Coke asked for closed doors when it was going to present its secret formula.

Re:There is a good chance code will be revealed (1)

khallow (566160) | more than 3 years ago | (#34054212)

This is no different than if Coke asked for closed doors when it was going to present its secret formula.

True, BUT the courts would be likely to grant Coke's request precisely to help protect their formula from public disclosure.

Re:There is a good chance code will be revealed (4, Insightful)

ottothecow (600101) | more than 3 years ago | (#34054490)

And that is how the justice system works.

If coke were accusing an employee of something relating to millions of dollars where they needed to present part of the formula as evidence and the court denied their request for closed doors, they might be forced to not present the evidence or not pursue trial at all. The formula is worth far more than one trial so they would probably walk away from having to publicly display it--if the employee was actually guilty of something, he would run free since coke would be unable to present key evidence.

Re:There is a good chance code will be revealed (4, Insightful)

khallow (566160) | more than 3 years ago | (#34054178)

I don't understand why trade secrets shoud be protected.

Because it can cause billions of dollars worth of harm to Goldman. It's reasonable to make this request.

Wasn't patent law allowed under the Constitution to prevent just this sort of thing?

No. Patent law was designed to encourage companies to reveal their relevant trade secrets in exchange for a temporary monopoly.

Re:There is a good chance code will be revealed (0, Flamebait)

hedwards (940851) | more than 3 years ago | (#34054620)

That's bullshit. As opposed to the status quo where their HFT platform allows them to fleece individual investors by buying shares that they know will go up. I mean not that they expect to go up, but what what the price will be in the near future.

Goldman Sachs is the sort of scum that needs to be run out of the country by any means necessary.

Re:There is a good chance code will be revealed (1)

ihaddsl (772965) | more than 3 years ago | (#34054876)

that's a complete misrepresentation of HFT - HFT is more about leveling pricing, and it's effect on the individual investor is positive, by providing a more liquid market with tighter spreads to people who do want to bet on the direction of a stock (HFT is not about betting on the movement one way or the other) you may be referring to the 'flash order' issue, where participants try to gain insight into the market by probing so called 'dark pools' where market data is not published, but to caracterize HFT as a whole with this dubious practice is to misunderstand the bulk of HFT

Re:There is a good chance code will be revealed (2, Insightful)

TheoMurpse (729043) | more than 3 years ago | (#34054730)

Before anyone jumps in to argue that patents protect what would be otherwise trade secrets, so there need be no protection for trade secrets, the point is this: you can't force someone to reveal their secrets, so you induce them but guaranteeing them if they reveal the secret, they'll have the full might of the government helping them out.

If your unpatented trade secret is revealed, you have recourse against the person who leaked it (often an employee with shallow pockets filled with dust, not greenbacks), but not against anyone who uses the trade secret. This is often the case when a mid-level employee leaves a service company and starts poaching the company's clients by using the company's secret client list.

Trade Secrets? (4, Insightful)

RingDev (879105) | more than 3 years ago | (#34053394)

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

Re:Trade Secrets? (2, Interesting)

HomelessInLaJolla (1026842) | more than 3 years ago | (#34053640)

There is a point of view, however, that questions the legitimacy of HFT to begin with (that appears to be an agreement with parent). HFT contributes to a system which affects salaries, wages, retirement funds, mortgage rates, interest rates, insurance premiums, and a host of other factors important to people who have no control over the profit margin retained by stock market manipulators. Honestly that rationale can likely be applied to the whole of the stock market: aside from a few quarterly reports or year-end summaries the market value of a company has little or nothing to do with the success or failure of its real world products. A particularly good example is that of the grocery store. Why should those people work for near minimum wage, why should you pay more for a bag of corn chips and a jar of salsa, just because somebody wanted to gain an edge in HFT?

If I were the judge I would refuse the request and leave the courtroom open. Industry trade secrets mean nothing if the American public deserves to know how it is being swindled en masse.

Re:Trade Secrets? (0)

Anonymous Coward | more than 3 years ago | (#34053792)

If you do not approve of it in any way, then you think it should be illegal. That is why it should not be sealed.

Re:Trade Secrets? (3, Insightful)

Hatta (162192) | more than 3 years ago | (#34053934)

Yes, if I were manipulating markets I wouldn't want that to get out either.

Re:Trade Secrets? (1)

Nexus7 (2919) | more than 3 years ago | (#34054516)

GS has long been rumored to be front-running the market (as legendary poster 'Anonymous Coward' said below, they see trades milliseconds before others). Yeah, I wouldn't want that to be confirmed as fact either.

Re:Trade Secrets? (2, Interesting)

JonySuede (1908576) | more than 3 years ago | (#34054032)

yeah but the fishy thing here is that it is not the Goldsack lawyer that requested the secretly but the federal prosecutor...

Re:Trade Secrets? (1)

Matthew Weigel (888) | more than 3 years ago | (#34054318)

Which Goldman Sachs lawyer? Since Aleynikov is being prosecuted criminally, not sued, it's the federal prosecutor in court claiming wrong-doing; Goldman Sachs' lawyers aren't representing either side.

Re:Trade Secrets? (1)

khallow (566160) | more than 3 years ago | (#34054320)

yeah but the fishy thing here is that it is not the Goldsack lawyer that requested the secretly but the federal prosecutor...

It's common sense. By making the request, you avoid having the opposition use it as a means to delay progress of the trial. Expediting the trial is a good, short term prosecutor move.

Re:Trade Secrets? (1, Interesting)

Benfea (1365845) | more than 3 years ago | (#34054866)

This software didn't allow Goldman Sachs to have a competitive edge over their competitors, it contributed to a massive financial collapse that resulted in taxpayers being robbed trillions of dollars. If this were a murder trial, should we make the trial secret because the gun manufacture doesn't want his competitors to know what kinds of springs he used?

This isn't about protecting intellectual property, it's about reminding we mere peasants that don't have as much influence over our government as our lords and ladies do.

Re:Trade Secrets? (1)

Black Parrot (19622) | more than 3 years ago | (#34055202)

If I were in that company's position, I'd very much like that testimony to remain sealed as well.

And it's the courts' job to keep rich people happy.

No. (2, Insightful)

clone53421 (1310749) | more than 3 years ago | (#34053424)

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...

Here is a Google analogy...(sorry no cars) (1)

bigredradio (631970) | more than 3 years ago | (#34053460)

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.

Re:Here is a Google analogy...(sorry no cars) (2, Interesting)

Amouth (879122) | more than 3 years ago | (#34053966)

if i remember correctly the Judge can seal trade secret documents - they are openly reviewed by both sides and the Judge under contempt to repeat/reuse out side of the court & case. The documents would be put into record as sealed evidence for the case.

in that way - the actual proceedings do not need to be closed only the content of a few documents.

Re:Here is a Google analogy...(sorry no cars) (1)

RegTooLate (1135209) | more than 3 years ago | (#34054230)

Umm, I think they already told us, search for The anatomy of a large-scale hypertextual Web search engine

Can't quite put my finger on it.... (2, Interesting)

jcrb (187104) | more than 3 years ago | (#34053472)

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.

Re:Can't quite put my finger on it.... (1, Informative)

Anonymous Coward | more than 3 years ago | (#34053544)

tar and feathering they have been getting from the current administration

Is that secret code for bailout? The current administration (and the last, and the next) is Wall street and no amount of rhetoric changes that.

Re:Can't quite put my finger on it.... (1, Insightful)

Anonymous Coward | more than 3 years ago | (#34053772)

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.

Do your lips get chapped from smoking Wall Street pole all day long, or have you gotten used to it? The "justified" response to the clusterfuck caused by the investment banks would have been to nationalize them and put the execs in JAIL. The fact that they're STILL whining despite record profits demonstrates that they're just bitches.

Re:Can't quite put my finger on it.... (-1, Troll)

jcrb (187104) | more than 3 years ago | (#34053968)

Please can we keep the nonsensical rhetoric down just a little, the investment banks didn't cause the current clusterfuck as you so aptly put it, the policy of pushing people into owning homes they couldn't afford on the basis that they government in the form of Fannie Mae and Freddie Mac would back those loans put us in the current situation. You want someone to put in jail? Have a little chat with Barny Frank, but leave the stupid evil bankers are the cause of all the wrong in the world crap outside. I'm not saying investment bankers are paragons of virtue, but anyone who doesn't understand that it was people not paying mortgages they couldn't afford that were offered to them because of government policies designed to increase low income home ownership, regardless of whether of not they could really afford those home is the one whose lips are chapped from smoking something too hard.

If you want to argue a point, then produce some evidence and act like a civilized person, if you want to be an anonymous coward and call me names I can play that game too, your call.

Re:Can't quite put my finger on it.... (1)

hedwards (940851) | more than 3 years ago | (#34054754)

Sure they did. Who else was it that was dealing in the derivatives market? The market for which dwarfed the entirety of the US economy for the next 40 years or so. If it wasn't the investment bankers, then who the fuck was orchestrating the whole thing?

600,000,000,000,000? [newsweek.com]

Re:Can't quite put my finger on it.... (3, Insightful)

Anonymous Coward | more than 3 years ago | (#34054888)

Well, that's not true either.

The biggest problem with the "current clusterfuck" was not so much bad loans per se. Bad loans are and were not unexpected with the sort of lower-quality loans that were being made, even though the extent of the defaults has been unexpectedly high. A major problem that allowed this to spread from the sub-sector of the financial industry that deals with housing to the wider market was the financial engineering that was supposed to generate safe AAA assets out of a pool of crap, and the financial and non-financial institutions who stacked their balance sheets with this pseudo-AAA stuff with no back-up plans because, after all, 'it's top rated'. If it was just about a bunch of people who invested directly in a crappy market the problems would be restricted to those directly involved, and nobody would really care.

How can I make a car analogy? A crappy old used-car with obvious rust that makes a horrible rattling noise when you start it both is and isn't dangerous - it has obvious flaws, but because these flaws are obvious it is possible to give it a wide berth if you don't know what you are doing. A car that looks new and doesn't make any obvious nasty sounds but has a flawed brake design can be more dangerous because you can't see that it is a death trap until you either do an implausible amount of inspection or ... until someone dies.

Oh - and your blame for Fannie and Freddie fails to explain how there can also have been a housing bubble in the UK, where FNMC and FNMA don't operate and there is no UK equivalent. Possibly economics is more complicated that a simple morality tale? If we look at WHY there was such a large demand for AAA-rated USD assets we then get on to macroeconomics, behavioral psychology and regulatory matters.

I have an elegant explanation for the events of 2008, but it is too long to fit in a /. comment...

Re:Can't quite put my finger on it.... (1)

khallow (566160) | more than 3 years ago | (#34054368)

but something seems unexpected about this level of concern by the Justice Department.

I don't know why you'd think that. The DoJ has an interest in removing obstacles to progress of the trial. The defense could use this issue to delay the trial significantly.

Re:Can't quite put my finger on it.... (2, Insightful)

sumdumass (711423) | more than 3 years ago | (#34055284)

Your also forgetting that they have an interest in prosecuting without issues that could cause a verdict to be over turned.

With all the political fevoring out there and general distaste for wall-street right now, releasing this information or making this public could raise a number of legal and ethics challenges causing something to be overturned or vacated on appeal.

Suppose releasing this information caused a public outcry which tainted the jury or worse yet, caused protests on the court house steps that is later claimed to influence the trial disproportionately against the defense. The bottom line is that keeping it quiet, at least until the verdict is in, will avoid a lot of that. The constitution guarantees a fair trial, not having one is grounds for appeal, not being able to have one at all, can be grounds to avoid prosecution at all. It will make it extremely more difficult to get a conviction to stick if it's in the open before the trial is concluded.

Which problems have HFT created? (0)

Anonymous Coward | more than 3 years ago | (#34053490)

I know that Slashdot just absolutely abhors urban myths and legends that veer into religion, so I would like to be informed which problems HFT have created.

For example, one urban myth based on prejudice (it is experience or prejudice, pick one) is that the August 2010 'flash crash' was caused by HFTs. Luckily we have always informative Wikipedia to correct that: http://en.wikipedia.org/wiki/Flash_crash

-1000 Troll, for who knows which reason.

Re:Which problems have HFT created? (2, Informative)

robot256 (1635039) | more than 3 years ago | (#34054110)

Not -1000 troll, just 0 Anonymous Coward. According to the final SEC report (read pages 5-6) [futuresmag.com] , 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.

Re:Which problems have HFT created? (1)

robot256 (1635039) | more than 3 years ago | (#34054244)

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.

Goldman's Lawyers (3, Insightful)

Sonny Yatsen (603655) | more than 3 years ago | (#34053554)

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.

Re:Goldman's Lawyers (0)

Anonymous Coward | more than 3 years ago | (#34054462)

Wait, seriously? On the assumption that this trial result isn't simply bought and paid for already, what do the Feds possibly gain from this?

Re:Goldman's Lawyers (1)

Archangel Michael (180766) | more than 3 years ago | (#34054634)

They don't call it Government Sachs for nothing. Take a look at who is at GS that used to be in the Federal Govt, and visa versa. This just stinks. And that which smells like shit usually is the Bull Shit they're trying to pass off to the public.

Unfair advantage (4, Insightful)

digitaldc (879047) | more than 3 years ago | (#34053606)

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.

Re:Unfair advantage (1)

clone53421 (1310749) | more than 3 years ago | (#34053662)

They aren’t legal, but they do indicate that the system is broken. It’s susceptible to what amounts to a denial of service attack.

Re:Unfair advantage (1)

clone53421 (1310749) | more than 3 years ago | (#34053768)

Disregard that. High-frequency trading is legal. I must be thinking of something else.

Re:Unfair advantage (1, Funny)

Anonymous Coward | more than 3 years ago | (#34054456)

HAHAHA DISREGARD THAT, I SUCK COCKS

(for the lameness filter, this is a bash.org reference. Hell, it's still probably lame, but it should at least pass the filter by now)

Re:Unfair advantage (1)

clone53421 (1310749) | more than 3 years ago | (#34054610)

I’m quite familiar with the saying, but I didn’t know where it came from. Linky please?

Re:Unfair advantage (0)

Anonymous Coward | more than 3 years ago | (#34054796)

http://www.bash.org/?5775

Re:Unfair advantage (0)

Anonymous Coward | more than 3 years ago | (#34055028)

I thought I'd posted this, but perhaps it also fell victim to the lameness filter.... :(

The, uh, citation is: http://www.bash.org/?5775

Re:Unfair advantage (4, Funny)

BabyDuckHat (1503839) | more than 3 years ago | (#34053790)

High-frequency trading supports a very important function of providing liquidity that allows the free flowing of, um, high-frequency trading and uh, high-risk prop-desk front running, and hmmm, other important and productive economic activities that benefit everyone and not just the rich elite. Seriously, stop asking questions about it.

Re:Unfair advantage (1)

davev2.0 (1873518) | more than 3 years ago | (#34053824)

Anyone can create a HFT system to automate buying and selling. All one needs is the skill and money to set up the system.

It is not a monopoly on the stock market because every medium to large trading house has its own HFT system. It does put individuals and smaller trading houses at a disadvantage but HFT generally takes advantage of small changes in price by volume. We wouldn't make much if we bought 100 shares of a stock that dipped by $.01 for one second, but Goldmans and the like can make a return on it by buying hundreds of thousand shares.

Re:Unfair advantage (1)

onkelonkel (560274) | more than 3 years ago | (#34053832)

How on earth is this a monopoly on the stock market? If Sachs can legally employ this system, then so can you. If you think you have a better system and you can convince enough people with enough money to let you build it then you can compete with Sachs. This is called a level playing field.

Re:Unfair advantage (4, Informative)

Anonymous Coward | more than 3 years ago | (#34054036)

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.

Re:Unfair advantage (1)

KingMotley (944240) | more than 3 years ago | (#34054534)

There is no "special" data. You can get it too.

Re:Unfair advantage (1)

hedwards (940851) | more than 3 years ago | (#34054854)

Not really, by the time you get it it's already obsolete. And good luck actually using the information as you have to be pretty much across the street using a computerized platform to make any use of it.

It's basically just a fancy form of insider trading which the SEC hasn't felt like cracking down on yet. Back in the 20s they had a similar scam going. The price for tomorrows stocks would be provided to select brokers the day before. It's just now that the time interval is smaller than what it used to be. It's also not something which all exchanges allow.

Re:Unfair advantage (1)

davev2.0 (1873518) | more than 3 years ago | (#34055010)

No, you can get access to the same information that Goldmans and the rest have access to, you just have to do what they do and buy the access. And, to be honest, even if you had the same access for free and an HFT system, you probably couldn't by enough stock using HFT to matter. Most individual traders buy less than 1000 shares. HFT systems buy hundreds of thousands if not millions of shares at a time.

Re:Unfair advantage (0)

Anonymous Coward | more than 3 years ago | (#34054906)

Except that the NYSE sells early access to the data.

Re:Unfair advantage (1)

compro01 (777531) | more than 3 years ago | (#34055004)

The special part of the data is that you have it a some milliseconds before anyone else does, by dint of having your servers physically right next to the exchange.

Re:Unfair advantage (1)

Kevin Stevens (227724) | more than 3 years ago | (#34054792)

This "special" access is available to anyone willing to pay for it. If you choose not to pay the higher price for faster market data, then I don't think you can blame the other guy for being faster. For what its worth, the really cutting edge market data solutions are all third party and available to anyone who will write a check. The costs of these things quickly skyrocketed past the point where it made sense for each firm to build their own system.

Re:Unfair advantage (1)

hedwards (940851) | more than 3 years ago | (#34054816)

It's not a monopoly, but it is a form of insider trading. Why the SEC isn't all over them for it is beyond me. They use the HFT in order to place trades during the window of time after they find out what the next price is and before the public does. Allowing them to place these very fast trades which guarantee them profit each time.

Re:Unfair advantage (0)

Anonymous Coward | more than 3 years ago | (#34054046)

For an investor who does not trade HFT is advantageous. HFT increases market volatility (combined with relaxed trading rules, less regulation) and creates discrepancy between price and value which can be exploited by an intelligent investor. HFT algorithms don't consider qualitative factors and are based on mathematical and statistical models only.
On the other hand, if you are a speculator who daytrades you are probably not going to beat big financial institutions which have large resources.

Re:Unfair advantage (1)

khallow (566160) | more than 3 years ago | (#34054454)

How is this type of computer system that trades before anyone else even CAN considered fair or even legal?

Well, the HFT system itself is obviously legal. But why would I care if it is "fair"? You could always spend a few tens of millions of dollars to get your own HFT system and code monkeys.

This is a monopoly on the stock market, WAY too much power in the hands of one company.

Is it? The whole point of the trial was that a programmer is accused of stealing the code for a competitor. Presence of a competitor implies absence of a monopoly.

Re:Unfair advantage (4, Insightful)

mea37 (1201159) | more than 3 years ago | (#34054788)

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.

The ability of an elite few to buy access to information about the value of an item, when that information is unavailable to others with whom they will buy and sell that item, is a violation of free market premises.

Much of what the SEC regulations do is to produce a free market. This is what many political pundits fail to understand - the "free" in free market does not mean "unregulated". The best regulatory approach in the world would never create a 100% ideal free market - money will always be able to buy research - but there's a difference between "not being able to produce a perfectly flat playing field" vs. "allowing people to artificially create an information assymetry, with the express purpose of taking profits from those on the other side of the field, with an insanely high barrier to entry for those who want to join you". HFT is the latter.

HFT is a practice that should be regulated out of existence.

Re:Unfair advantage (5, Informative)

HiddenL (967659) | more than 3 years ago | (#34055140)

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 [lightspeed.com]
http://www.limebrokerage.com/contact_us.shtml [limebrokerage.com]
http://www.ften.com/buy-side-products/vx-velocityxpress.html [ften.com]

They all offer colocation services.

Re:Unfair advantage (1, Informative)

Anonymous Coward | more than 3 years ago | (#34055318)

You don't need to co-locate for HFT. I personally have built/configured several datafeeds for these systems, and co-location was almost never a financially viable option. Most banks don't co-locate all of their HFT.

Re:Unfair advantage (1)

onkelonkel (560274) | more than 3 years ago | (#34055560)

Maybe I’m being naïve here, but I’m assuming that anyone can go to New York with a couple of hockey bags full of money, lease some space as close as physically possible to the Exchange and then get MCI or Verizon or Sprint or whoever has the fastest ping time to the NYSE servers to get you a data connection. I didn't realize that Goldman Sachs servers were actually collocated with the NYSE servers. Even so, with a local fiber connection your hypothetical system should be fast enough to compete.

Re:Unfair advantage (2, Informative)

hedwards (940851) | more than 3 years ago | (#34054992)

Is it? The whole point of the trial was that a programmer is accused of stealing the code for a competitor. Presence of a competitor implies absence of a monopoly.

No it doesn't. It implies that somebody wants to compete, it does not imply that they're already in the market.

Re:Unfair advantage (2, Insightful)

Kevin Stevens (227724) | more than 3 years ago | (#34054556)

Anyone with reasonably deep pockets can build one. Speed advantages in the stock market have always existed. Why do you think the floor brokers are there? They wanted to be able to trade on information first. People are just going all OMG about it because its on computers, and therefore somehow scarier to them (and you even see this on Slashdot, which is strange).

You can't control or direct the market with these systems any more than a guy in the pit that can yell BUY faster than everyone else. You need to shift demand to move the market.

Monopoly on the stock market? Now you are kind of out in left field. How do they in any, way, shape, or form... have a monopoly... on the stock market? I am not even sure what a monopoly on the stock market would look like.

Yet somehow you are marked insightful... blind groupthink strikes again.

Re:Unfair advantage (1, Insightful)

Anonymous Coward | more than 3 years ago | (#34055528)

"People are just going all OMG about it because its on computers, and therefore somehow scarier to them (and you even see this on Slashdot, which is strange)."

People on Slashdot object BECAUSE they understand the computer technology (reduced latency due to proximity to the central data sources etc), and how it's being used by the big players.

No big surprise (3, Informative)

davev2.0 (1873518) | more than 3 years ago | (#34053706)

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.

Easy fix (4, Insightful)

whiteboy86 (1930018) | more than 3 years ago | (#34053802)

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.

Re:Easy fix (1, Insightful)

Anonymous Coward | more than 3 years ago | (#34053882)

Or, allow them to do whatever they want but have clocked-synchronous trades so that no one can gain a disproportionate advantage by trading faster than others are capable of.

Re:Easy fix (2, Insightful)

khallow (566160) | more than 3 years ago | (#34054480)

Or don't do anything and avoid "fixing" a non-problem.

Re:Easy fix (1)

hedwards (940851) | more than 3 years ago | (#34055034)

It's a problem. They make money on the system by buying with knowledge of what the price will be in the future. Knowledge which isn't freely available or exploitable by others. And when they screw it up it hurts everybody else as well.

Not sure how exactly that isn't a problem.

Trade secrets are worse than patents (1)

Animats (122034) | more than 3 years ago | (#34053980)

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.

Re:Trade secrets are worse than patents (2, Insightful)

0123456 (636235) | more than 3 years ago | (#34054106)

OK, for all you whiners about the evils of software patents, this is what you get - secret algorithms.

And this is a problem because?

'Secret algorithms' are far less painful than patents, because anyone can produce their own algorithm, whereas no-one can use tech covered by even the stupidest and most absurdly obvious patent without risking a long and expensive court battle.

Of course no sane legal system would close a sourt just because someone's 'secret algorithm' might be mentioned.

Re:Trade secrets are worse than patents (1)

KingMotley (944240) | more than 3 years ago | (#34054592)

Of course they would, or they would open themselves up to a possible lawsuit asking for damages in the amount of possible profits (+ penalty, interest, legal fees) lost because of it.

Re:Trade secrets are worse than patents (1)

0123456 (636235) | more than 3 years ago | (#34054704)

Of course they would, or they would open themselves up to a possible lawsuit asking for damages in the amount of possible profits (+ penalty, interest, legal fees) lost because of it.

So you're going to sue the government because your 'secret algorithm' was important evidence in a criminal case?

How can anyone determine whether a court case was legitimate if they're not allowed to see the evidence? Closed courts in all but the most extreme cases go completely against the very basis of the anglo legal system.

Re:Trade secrets are worse than patents (1)

TheoMurpse (729043) | more than 3 years ago | (#34054836)

Of course no sane legal system would close a [c]ourt just because someone's 'secret algorithm' might be mentioned.

Please defend this assertion, Mister Conclusorystatement.

Re:Trade secrets are worse than patents (1)

Kijori (897770) | more than 3 years ago | (#34055108)

Of course no sane legal system would close a sourt just because someone's 'secret algorithm' might be mentioned.

I fail to see what is "insane" about closing the court for the part of the case that involves trade secrets that, if revealed, would have a huge financial impact on a very large company.

Re:Trade secrets are worse than patents (1)

$RANDOMLUSER (804576) | more than 3 years ago | (#34054140)

That is an interesting point, but it disregards the notion that I can patent portions of (for example) High Frequency Trading, so that no one else can do it (without infringing) until my patent expires.

Re:Trade secrets are worse than patents (2, Interesting)

mea37 (1201159) | more than 3 years ago | (#34054862)

HFT is already pretty exclusionary, so I'm not sure that's the real issue.

Also, barring a screw-up at the PTO, you'd have to actually be ahead of the curve on HFT techniques and would only get a monopoly on those advances - not on anything necessary to doing HFT today.

And given the short expected lifetime of an HFT algorithm (particularly if one is optimistic enough to hope that the practice might become illegal in the near future) I'm not sure you'd want to invest in a patent, whereas protecting a trade secret is actually made easier if the time horizon is short.

Re:Trade secrets are worse than patents (0)

Anonymous Coward | more than 3 years ago | (#34054602)

Of course, if they were allowed to patent it, then it would become a 'broadest patent takes all' competition and everyone else would have to risk lawsuits for infringement or beg to license the algorithms...

Re:Trade secrets are worse than patents (1)

0123456 (636235) | more than 3 years ago | (#34054734)

Of course, if they were allowed to patent it, then it would become a 'broadest patent takes all' competition and everyone else would have to risk lawsuits for infringement or beg to license the algorithms...

But the major players in most industries will already have patent licensing deals with each other because they can't operate without access to each others' patents.

Patents exist to keep everyone else out of the market, not to gain more than a minor temporary advantage over your competitors.

Re:Trade secrets are worse than patents (1)

mea37 (1201159) | more than 3 years ago | (#34054946)

There's a big difference between software that one company is using in-house, vs. software that a company is selling for others to use. Preserving trade secret protection on, say, the GIF encoding algorithms would've been pretty much impossible.

Not Unheard Of (5, Informative)

al3k (1638719) | more than 3 years ago | (#34054026)

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.

Useless (2, Insightful)

wervr (712696) | more than 3 years ago | (#34054148)

Re:Useless (2, Insightful)

davev2.0 (1873518) | more than 3 years ago | (#34055072)

Actually, this is part of why they want to protect the algorithms. The Norwegians figured out the system, but if the HFT algorithms are made public, it will be a lot easier for people to game the whole system.

Re:Useless (1)

sumdumass (711423) | more than 3 years ago | (#34055450)

Because they are not one in the same.

The HFT is supposed to only be an action only to reaction to the market, the news article you linked to is where they manipulated the market for their gain which is illegal even though it primarily exploited a HFT program. Now, this court case is similar only in that it revolves around a HFT program. It's about someone taking the code and transporting it somewhere to use to their benefit/whatever (stealing trade secrets).

You can do whatever you want to gain an edge in the markets. Unless you actually manipulate the markets or break an existing law/rule in order to do that.

It's the Wall Street Tax, Baby (1)

MarkvW (1037596) | more than 3 years ago | (#34054688)

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.

Re:It's the Wall Street Tax, Baby (0)

Anonymous Coward | more than 3 years ago | (#34054956)

A solution to this is to place only limit buy and limit sell orders. You may or may not execute a transaction, but if you do the price is set. Another way is to watch the bid/ask price feed and press the button just after it ticks in the way you wanted. A tool like QuoteTracker gives you access to the feed for a stock within milliseconds. At the end of each day, you can see the automated systems moving the bid/ask price in cycles.

Re:It's the Wall Street Tax, Baby (1)

MaWeiTao (908546) | more than 3 years ago | (#34055516)

Humans will find a way to exploit any system. Look at any online RPG out there. They all start with the most level playing field imaginable and strive to ensure equality. And yet eventually you end with haves and have-nots.

What we need is regulation that is flexible and able to respond to a changing environment. We also need regulation that doesn't favor special interests and don't compromise. Perhaps a true free market would eventually work through any problem, but I think it's likely that most problems wouldn't be addressed on a short enough timescale to be of any use to most people.

But regulation doesn't imply a bloated, ponderous government. Is there any reason why we can't have a small government AND efficient, proper regulation?

the stock market needs a "heartbeat" (1)

circletimessquare (444983) | more than 3 years ago | (#34054766)

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"

accused of improperly downloading (0)

Anonymous Coward | more than 3 years ago | (#34055374)

Aleynikov is accused of improperly downloading Goldman code to an outside server on June 5, 2009, his last day working at the company.

you mean, he didn't use rsync?

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