The New York Times has an update on Sergey Aleynikov, the former Goldman Sachs (GS) employee accused of stealing code relating to high-frequency trading. The report doesn’t push the story along too much further. Aleynikov is out on bail and claims he inadvertantly downloaded only a snippet of code, which he never used. Goldman says the code he downloaded could undermine the company’s entire investment in the area.
We’ve seen the number $20 billion cited for how big this business is, though this report cites Larry Tabb of the Tabb Group as putting the total business at $8 billion per year, which is still considerable.
One problem with Goldman’s complaint — whether you believe Aleynikov acted maliciously or not — is that implementing these strategies doesn’t sound particularly tough. You have (relatively) tiny hedge funds out there doing it. It doesn’t require the brainpower or technological infrastructure of a major bank. So why would Aleynikov have needed to steal Goldman code?
Steve Hsu at Information Processing makes a good point as to the appeal of high-frequency strategies right now:
These activities are particularly appealing to banks and hedge funds in the current environment because a trader can book a real profit or loss at the end of each day (or even every few seconds!), which is the exact opposite of the illiquid positions that led to the credit crisis. In the long run, even complex derivatives like CDO and CDS contracts have the potential of providing some social good — the ability to diversify risks, etc. I see no comparable redeeming value in high speed trading.
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