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Of course, if this technology was able to price securities better than the market (the fundamental job of almost every market participant), it would be printing

Of course, if this technology was able to price securities better than the market (the fundamental job of almost every market participant), it would be printing money and they would not release it. This is not the secret sauce, but probably an implementation of a set of standard well known pricing and risk models. That's still useful, and can be expensive to develop, so thanks Goldman.

trpc 8y ago
Investment banks don't even have the secret sauce, hedge funds like Renaissance Technologies and D. E. Shaw & Co. are the ones that have it
- kranner 8y ago
  Investment banks have proprietary trading desks that are effectively hedge funds.
  - jen20 8y ago
    GS used to be nicknamed “the worlds largest hedge fund”. They have plenty of world class proprietary tech, but the OP is right: this is not likely to be secret sauce at all.
    - JackFr 8y ago
      That's Harvard's endowment. Harvard University itself exists at this point merely as a tax dodge for the $37 billion AUM hedge fund.
  - ryeguy_24 8y ago
    I don’t think this is accurate. Regulators release the Volcker Rule to shut down prop trading at banks.
    - govg 8y ago
      There still exist principal investing groups, as well as market making groups that can contribute to the bottom line.
      - ryeguy_24 8y ago
        Right. They have tons of trading activities that are non-proprietary. I’m sure they can always hide some positions that are truly proprietary but largely they are not supposed to put on positions for their own gain.
    - nickles 8y ago
      The Volcker rule contains exemptions for certain prop trading activities. For example, trading in US government bonds is exempt.
      - rbavocadotree 8y ago
        Here's nice flowchart[0] to determine what counts as proprietary trading. There is a surprising amount that is still allowed. https://www.davispolk.com/files/DavisPolk_Final_Volcker_Rule_Flowcharts_Prop_Trading.pdf https://www.davispolk.com/files/DavisPolk_Final_Volcker_Rule...
  - deleted 8y ago
    [deleted]
- chrisfinazzo 8y ago
  It's a bit disingenuous to say that BB's don't have a stake in HFT. At the time of Aleynikov's case, Goldman was routinely at the top of the NYSE rankings with regard to programmatic trading volume.
  - nickles 8y ago
    > Goldman was routinely at the top of the NYSE rankings with regard to programmatic trading volume. I took 'secret sauce' in GP's comment to mean 'profitable strategies'. Don't confuse volume with profitability. It's conceivable that a BB would deliberately lose money in some activities to have clients give them other, more profitable flow/business.
    - chrisfinazzo 8y ago
      That's true. It's "LeFevre's corollary", if you will :) N.B, Lapdance not gauranteed
AznHisoka 8y ago
It's akin to Facebook open sourcing their social network framework, rather than the entire personal information of all their users. Of course it's useful to some people, but it's not what makes them money.
lordnacho 8y ago
> the fundamental job of almost every market participant Not true. You might make an argument that this is the effect of having them together in a market, but that's not their job: - Market maker: hang around the market offering to trade with anyone (pref retail) at a spread. Doesn't care whether TSLA is gonna be able to make all those Model 3s. - Pension fund: make sure they can pay the liabilities that are coming due. If that can be locked in, happy to pay a bit more than fair value to do so. - Hedge fund: make absolute returns. Buy before it goes up, sell before it goes down. Whatever form of voodoo (or skill) fulfills this is fine. This doesn't have to mean finding the right price (could just mean you guess which way it's going), though of course often it is part of the objective. - Broker: finds people on both sides of a trade. Doesn't care terribly much except to create excitement. - Banks: lend money/securities and offer services to all of the above. Create research to make people trade. Securitise stuff so people can trade it. Often do a bit of everything. Source: used to run hedge funds.
- scarletham 8y ago
  I think you're missing the gist of his statement and also overlooking the word "almost"? That being said, most of your definitions are still dependent on competitively pricing securities. A market maker who can't calculate reasonable theos won't be a market maker for long.
  - lordnacho 8y ago
    > most of your definitions are still dependent on competitively pricing securities No, the MM doesn't care if TSLA is overpriced. He just sees where everyone is and makes a market roughly there. > You can't provide quotes if you don't have something to quote around. But you don't have to quote around the actual value of the item. That's the point.
    - scarletham 8y ago
      I work in a MM group so take this as you will, but the days of profitably making markets by just fitting everything to the screens are long gone.
pytyper2 8y ago
It's probably not a download it and run it piece of software, there are probably lots of configurations and likely requires the user to provide their own models and trading rules.

trpc 8y ago

Investment banks don't even have the secret sauce, hedge funds like Renaissance Technologies and D. E. Shaw & Co. are the ones that have it

kranner 8y ago
Investment banks have proprietary trading desks that are effectively hedge funds.
- jen20 8y ago
  GS used to be nicknamed “the worlds largest hedge fund”. They have plenty of world class proprietary tech, but the OP is right: this is not likely to be secret sauce at all.
  - JackFr 8y ago
    That's Harvard's endowment. Harvard University itself exists at this point merely as a tax dodge for the $37 billion AUM hedge fund.
- ryeguy_24 8y ago
  I don’t think this is accurate. Regulators release the Volcker Rule to shut down prop trading at banks.
  - govg 8y ago
    There still exist principal investing groups, as well as market making groups that can contribute to the bottom line.
    - ryeguy_24 8y ago
      Right. They have tons of trading activities that are non-proprietary. I’m sure they can always hide some positions that are truly proprietary but largely they are not supposed to put on positions for their own gain.
  - nickles 8y ago
    The Volcker rule contains exemptions for certain prop trading activities. For example, trading in US government bonds is exempt.
    - rbavocadotree 8y ago
      Here's nice flowchart[0] to determine what counts as proprietary trading. There is a surprising amount that is still allowed. https://www.davispolk.com/files/DavisPolk_Final_Volcker_Rule_Flowcharts_Prop_Trading.pdf https://www.davispolk.com/files/DavisPolk_Final_Volcker_Rule...
- deleted 8y ago
  [deleted]
chrisfinazzo 8y ago
It's a bit disingenuous to say that BB's don't have a stake in HFT. At the time of Aleynikov's case, Goldman was routinely at the top of the NYSE rankings with regard to programmatic trading volume.
- nickles 8y ago
  > Goldman was routinely at the top of the NYSE rankings with regard to programmatic trading volume. I took 'secret sauce' in GP's comment to mean 'profitable strategies'. Don't confuse volume with profitability. It's conceivable that a BB would deliberately lose money in some activities to have clients give them other, more profitable flow/business.
  - chrisfinazzo 8y ago
    That's true. It's "LeFevre's corollary", if you will :) N.B, Lapdance not gauranteed

AznHisoka 8y ago

It's akin to Facebook open sourcing their social network framework, rather than the entire personal information of all their users. Of course it's useful to some people, but it's not what makes them money.

lordnacho 8y ago

> the fundamental job of almost every market participant Not true. You might make an argument that this is the effect of having them together in a market, but that's not their job: - Market maker: hang around the market offering to trade with anyone (pref retail) at a spread. Doesn't care whether TSLA is gonna be able to make all those Model 3s. - Pension fund: make sure they can pay the liabilities that are coming due. If that can be locked in, happy to pay a bit more than fair value to do so. - Hedge fund: make absolute returns. Buy before it goes up, sell before it goes down. Whatever form of voodoo (or skill) fulfills this is fine. This doesn't have to mean finding the right price (could just mean you guess which way it's going), though of course often it is part of the objective. - Broker: finds people on both sides of a trade. Doesn't care terribly much except to create excitement. - Banks: lend money/securities and offer services to all of the above. Create research to make people trade. Securitise stuff so people can trade it. Often do a bit of everything. Source: used to run hedge funds.

scarletham 8y ago
I think you're missing the gist of his statement and also overlooking the word "almost"? That being said, most of your definitions are still dependent on competitively pricing securities. A market maker who can't calculate reasonable theos won't be a market maker for long.
- lordnacho 8y ago
  > most of your definitions are still dependent on competitively pricing securities No, the MM doesn't care if TSLA is overpriced. He just sees where everyone is and makes a market roughly there. > You can't provide quotes if you don't have something to quote around. But you don't have to quote around the actual value of the item. That's the point.
  - scarletham 8y ago
    I work in a MM group so take this as you will, but the days of profitably making markets by just fitting everything to the screens are long gone.

pytyper2 8y ago

It's probably not a download it and run it piece of software, there are probably lots of configurations and likely requires the user to provide their own models and trading rules.