10 ms·

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

87 points by hachiya 17y ago

ShabbyDoo 17y ago
>at that time earning $400,000 annually I really, really need to leave the Midwest. He was basically a dev lead?
- gaius 17y ago
  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.
  - profquail 17y ago
    Just for a bit more info...most job postings that I've seen for quant positions generally require at least an M.S. in Finance, if not a a Ph.D. in Finance or another technical field (Math/Physics/Comp. Sci./Engineering). This is so you'll either already be trained in the underlying financial math, or will be able to learn it quickly. Also, the field is pretty stressful from what I hear. Not that some dev shops aren't the same way though...
    - gaius 17y ago
      Yes, and you would have picked up your programming skills incidentally through studying your main subject. Quants are not software engineers - the programs they write are simply proxies for themselves as traders, able to react instantly and run 24/7.
  - ShabbyDoo 17y ago
    Oh...he was a quant...ok, makes more sense now. So, that implies that the code he stole likely contained trading strategies.
  - brown9-2 17y ago
    If he was only a "quant" though, i.e. an analyst and a trader, why in the world would they give him access to the source code? Sounds to me like he was in fact a programmer.
  - gelliott 17y ago
    I don't think this guy was a quant at all, just a heavy-hitting programmer: http://www.linkedin.com/in/aleynikov http://www.linkedin.com/in/aleynikov
- dangoldin 17y ago
  That was probably before bonus too.
- wglb 17y ago
  There are serious jobs in Chicago in the financial sector.
  - jcl 17y ago
    E.g.: The blog post linked in the article specifically mentions that Aleynikov left his $400,000 job in New York for a $1,200,000 job in Chicago.
- bwd 17y ago
  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.
ShabbyDoo 17y ago
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 17y ago
  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.
  - mustpax 17y ago
    I disagree about the short term bump part. Quant trading algorithms, like most stochastic trading approaches, lose their effectiveness over time as the market internalizes them and as knowledge dissipates naturally (not necessarily through leaks). The best of the best individual quant trading algorithms have a half-life that does not exceed one month. And we're talking exceptional here. Also, at any given time many, many algorithms will be running simultaneously; complementing, overriding eachother as necessary. So there's a lot of churn overall. The code that someone picks up in this way contains a single snapshot of this transient trading strategy, not particularly useful to run on their own. You're right that, what really sucks for Goldman is that someone could find some basic patterns inherent to their trading platform and trade "against" Goldman. The catch is that this sort of maneuvering happens all the time. Sure it's going to be painful in the near term for the Goldman quant guys, but they don't need to start from scratch necessarily.
    - mediaman 17y ago
hachiya 17y ago
Further commentary at: http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html 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 17y ago
  There is an decent comment speculating on why/how as well http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html#dsq-cite-12186605 http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi...
- nopassrecover 17y ago
  Sounds like an excuse to fire a department they can no longer afford.
  - nopassrecover 17y ago
    Er, okay. The point is that this does not have to spend the end for this program.
    - nopassrecover 17y ago
      Er spell the end
staunch 17y ago
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.
- bsaunder 17y ago
  Perhaps you are undervaluing the practical worth of this code.
- smanek 17y ago
  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).
  - jonknee 17y ago
    Maybe they have already shorted their own shares.
    - eru 17y ago
      That would be the same as putting more of their shares on the market. (Assuming they can always plug the short with newly created shares.)
    - quizbiz 17y ago
      I have always wondered if brokers are allowed to trade stocks of their own firm.
      - dandelany 17y ago
        Yes, as long as they do so based solely on material, public information and report all transactions to the SEC. Obviously, this is nearly impossible to police.
deleted 17y ago
[deleted]
andrewljohnson 17y ago
Jeez, you'd have to be a fool to bet money on GS's software :)
zandorg 17y ago
Codes? The plural for 'code' is 'code' not 'codes'! I can't believe Reuters is talking like a warez kid.
- gjm11 17y ago
  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.)
- cvg 17y ago
  Isn't this the British English version of code? I think I've seen it elsewhere in British press.
  - aka- 17y ago
    I'm British and codes would be used for cryptographic codes or voucher codes, but not in programming. Files full of C++ are code, not codes.
- gaius 17y ago
  Codes is the normal term in serious numerical computing. Fluid dynamics, finite element, etc people say this all the time.
dandelany 17y ago
According to the NYSE's program trading report: http://www.nyse.com/pdfs/PT06.15.09.pdf 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 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-exchange-we-screwed-up.html 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 http://www.google.com/finance?q=GS Something majorly fishy is going on.

87 points by hachiya 17y ago

ShabbyDoo 17y ago

>at that time earning $400,000 annually I really, really need to leave the Midwest. He was basically a dev lead?

gaius 17y ago
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.
- profquail 17y ago
  Just for a bit more info...most job postings that I've seen for quant positions generally require at least an M.S. in Finance, if not a a Ph.D. in Finance or another technical field (Math/Physics/Comp. Sci./Engineering). This is so you'll either already be trained in the underlying financial math, or will be able to learn it quickly. Also, the field is pretty stressful from what I hear. Not that some dev shops aren't the same way though...
  - gaius 17y ago
    Yes, and you would have picked up your programming skills incidentally through studying your main subject. Quants are not software engineers - the programs they write are simply proxies for themselves as traders, able to react instantly and run 24/7.
- ShabbyDoo 17y ago
  Oh...he was a quant...ok, makes more sense now. So, that implies that the code he stole likely contained trading strategies.
- brown9-2 17y ago
  If he was only a "quant" though, i.e. an analyst and a trader, why in the world would they give him access to the source code? Sounds to me like he was in fact a programmer.
- gelliott 17y ago
  I don't think this guy was a quant at all, just a heavy-hitting programmer: http://www.linkedin.com/in/aleynikov http://www.linkedin.com/in/aleynikov
dangoldin 17y ago
That was probably before bonus too.
wglb 17y ago
There are serious jobs in Chicago in the financial sector.
- jcl 17y ago
  E.g.: The blog post linked in the article specifically mentions that Aleynikov left his $400,000 job in New York for a $1,200,000 job in Chicago.
bwd 17y ago
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.

ShabbyDoo 17y ago

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 17y ago
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.
- mustpax 17y ago
  I disagree about the short term bump part. Quant trading algorithms, like most stochastic trading approaches, lose their effectiveness over time as the market internalizes them and as knowledge dissipates naturally (not necessarily through leaks). The best of the best individual quant trading algorithms have a half-life that does not exceed one month. And we're talking exceptional here. Also, at any given time many, many algorithms will be running simultaneously; complementing, overriding eachother as necessary. So there's a lot of churn overall. The code that someone picks up in this way contains a single snapshot of this transient trading strategy, not particularly useful to run on their own. You're right that, what really sucks for Goldman is that someone could find some basic patterns inherent to their trading platform and trade "against" Goldman. The catch is that this sort of maneuvering happens all the time. Sure it's going to be painful in the near term for the Goldman quant guys, but they don't need to start from scratch necessarily.
  - mediaman 17y ago

hachiya 17y ago

Further commentary at: http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html 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 17y ago
There is an decent comment speculating on why/how as well http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html#dsq-cite-12186605 http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi...
nopassrecover 17y ago
Sounds like an excuse to fire a department they can no longer afford.
- nopassrecover 17y ago
  Er, okay. The point is that this does not have to spend the end for this program.
  - nopassrecover 17y ago
    Er spell the end

staunch 17y ago

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.

bsaunder 17y ago
Perhaps you are undervaluing the practical worth of this code.
smanek 17y ago
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).
- jonknee 17y ago
  Maybe they have already shorted their own shares.
  - eru 17y ago
    That would be the same as putting more of their shares on the market. (Assuming they can always plug the short with newly created shares.)
  - quizbiz 17y ago
    I have always wondered if brokers are allowed to trade stocks of their own firm.
    - dandelany 17y ago
      Yes, as long as they do so based solely on material, public information and report all transactions to the SEC. Obviously, this is nearly impossible to police.

deleted 17y ago

[deleted]

andrewljohnson 17y ago

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

zandorg 17y ago

Codes? The plural for 'code' is 'code' not 'codes'! I can't believe Reuters is talking like a warez kid.

gjm11 17y ago
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.)
cvg 17y ago
Isn't this the British English version of code? I think I've seen it elsewhere in British press.
- aka- 17y ago
  I'm British and codes would be used for cryptographic codes or voucher codes, but not in programming. Files full of C++ are code, not codes.
gaius 17y ago
Codes is the normal term in serious numerical computing. Fluid dynamics, finite element, etc people say this all the time.

dandelany 17y ago

According to the NYSE's program trading report: http://www.nyse.com/pdfs/PT06.15.09.pdf 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 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-exchange-we-screwed-up.html 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 http://www.google.com/finance?q=GS Something majorly fishy is going on.