Anyone reading Trader Magazine‘s recent interview with Goldman’s Greg Tusar, the head of the firm’s high frequency trading, was probably stunned to see Tusar say this:
“In the trade-off between: do we give away information about how our algos work or are we more interested in getting clients comfortable with our order-routing practices, we would opt more for the latter than worry about the former.”
So Tusar just said: We will give away information to clients in order to get the comfortable with our practices.
This is surprising.
Every time we’ve asked a trader about his algos, he’s asked us to talk about something else. And in HFT conferences we’ve been in, traders got awkward and changed the subject when they were asked about the strategies they were using, or what their algorithms were programmed to do.
So naturally, we were curious when Tusar said that for their clients, Goldman is willing to open up – even though it was one of a few times in the interview that Tusar disclosed more information about Goldman’s algos than we were expecting.
Because like the Trader Magazine interviewer, James Ramage, assumes when he starts to talk about it with Tusar, most people worry that if information about algorithms is made known, someone will use it, and undermine profits.
“The concern [is that] someone out there would be able to reverse-engineer the algorithms. And that’s why some people don’t want full disclosure.”
As an example of this concern, look at what happened when to a couple of traders who recently “cracked” a firm’s HFT algo. They were charged with market manipulation for and using it against them.
So why is Goldman so willing to open up about their algos?
A few thoughts:
— The information is legally protected up the a$$, so they’ll be able to sue the pants off anyone who tries to use it against them or makes it public, etc.
— Goldman is under a lot of pressure from clients right now to prove to them that they’re on their side and not trading against them. In other words, to do whatever the clients want.
— Goldman really is trying to become a more client-centric firm. Especially now that they’ve lost their prop trading desk.