Arrest Over Software Illuminates Wall St. Secret

[SavageOrangeJug]

Interesting article on the world of ultra fast trading, and the huge bucks behind it.

A little long, but worth the read IMHO.

Flying home to New Jersey from Chicago after the first two days at his new job, Sergey Aleynikov was prepared for the usual inconveniences: a bumpy ride, a late arrival.

He was not expecting Special Agent Michael G. McSwain of the F.B.I.

At 9:20 p.m. on July 3, Mr. McSwain arrested Mr. Aleynikov, 39, at Newark Liberty Airport, accusing him of stealing software code from Goldman Sachs, his old employer. At a bail hearing three days later, a federal prosecutor asked that Mr. Aleynikov be held without bond because the code could be used to “unfairly manipulate” stock prices.

This case is still in its earliest stages, and some lawyers question whether Mr. Aleynikov should be prosecuted criminally, or whether a civil suit may be more appropriate. But the charges, along with civil cases in Chicago and New York involving other Wall Street firms, offer a glimpse into the turbulent world of ultrafast computerized stock trading.

Little understood outside the securities industry, the business has suddenly become one of the most competitive and controversial on Wall Street. At its heart are computer programs that take years to develop and are treated as closely guarded secrets.

Mr. Aleynikov, who is free on $750,000 bond, is suspected of having taken pieces of Goldman software that enables the buying and selling of shares in milliseconds. Banks and hedge funds use such programs to profit from tiny price discrepancies among markets and in some instances leap in front of bigger orders.

Defenders of the programs say they make trading more efficient. Critics say they are little more than a tax on long-term investors and can even worsen market swings.

The rest of the article: HERE

[rjd970]

Sabrina Shroff, a public defender who represents Mr. Aleynikov, responded that he had transferred less than 32 megabytes of Goldman proprietary code, a small fraction of the overall program, which is at least 1,224 megabytes.

32mb of code is a BUNCH.

[Daddy Gee]

maybe not the same thing, but naked short selling is also scary. you financial guys understand this better than I....

short video on naked short selling....
Naked short selling – redefining systemic risk | Deep Capture: exposing the crime of naked short selling

similar
http://vimeo.com/3722293


long, but very good... indicts SEC...
Darkside of the Looking Glass (full)

[SavageOrangeJug]

Originally Posted by rjd970

32mb of code is a BUNCH.

Especially if you've spent million$ of your money developing that code.

[droski]

naked short selling is a big problem and needs to be procecuted. these guys aren't making big money on flash trading.

[rjd970]

Originally Posted by SavageOrangeJug

Especially if you've spent million$ of your money developing that code.

I'm just talking about the sheer amount of code. If it really is just code, and no software, this is a lot. Open a text file and start typing until the file reaches 32mb. That is a lot.

[BigPapaVol]

Originally Posted by droski

naked short selling is a big problem and needs to be procecuted. these guys aren't making big money on flash trading.

agreed. if guys were forced to capitalize the bet, the huge short volume would dry up quickly.

[oklavol]

Interesting article thanks for posting.

[SavageOrangeJug]

Originally Posted by droski

naked short selling is a big problem and needs to be procecuted. these guys aren't making big money on flash trading.

Why do they spend so much money developing the software? What's the return, if not profit?

[droski]

Originally Posted by SavageOrangeJug

Why do they spend so much money developing the software? What's the return, if not profit?

i guess i should have been more specific. the argument against flash trading is that somehow the "little guy" is getting screwed here because the big old bad traders see the trades and the little guys don't. i think a pretty valid argument could be made that flash trading is more efficient for larger orders and therefore the small trader benefits over the long term. but in reality we are talking about a difference of something like .01 (or .02 at most) cents per share that the small guy is getting screwed when there is a flash trade. these guys make money because of the huge volume of trades (and this is the reason the computers do it), but they make money more in a superman III way. cents times tens of thousands. and if you factor in the fact that the majority of people invest in mutal funds rather than individual stocks i'd argue that they benefit overall from it.

[rjd970]

Originally Posted by droski

i guess i should have been more specific. the argument against flash trading is that somehow the "little guy" is getting screwed here because the big old bad traders see the trades and the little guys don't. i think a pretty valid argument could be made that flash trading is more efficient for larger orders and therefore the small trader benefits over the long term. but in reality we are talking about a difference of something like .01 (or .02 at most) cents per share that the small guy is getting screwed when there is a flash trade. these guys make money because of the huge volume of trades (and this is the reason the computers do it), but they make money more in a superman III way. cents times tens of thousands. and if you factor in the fact that the majority of people invest in mutal funds rather than individual stocks i'd argue that they benefit overall from it.

From what little I understand about it, that is what it boils down to and why this technology is so appealing.

[BigPapaVol]

Originally Posted by SavageOrangeJug

Why do they spend so much money developing the software? What's the return, if not profit?

The software helps them garner the biggest and baddest investors as clients, period. That incremental cent matters to few aside from those guys.
Posted via VolNation Mobile

[SavageOrangeJug]

Originally Posted by droski

i guess i should have been more specific. the argument against flash trading is that somehow the "little guy" is getting screwed here because the big old bad traders see the trades and the little guys don't. i think a pretty valid argument could be made that flash trading is more efficient for larger orders and therefore the small trader benefits over the long term. but in reality we are talking about a difference of something like .01 (or .02 at most) cents per share that the small guy is getting screwed when there is a flash trade. these guys make money because of the huge volume of trades (and this is the reason the computers do it), but they make money more in a superman III way. cents times tens of thousands. and if you factor in the fact that the majority of people invest in mutal funds rather than individual stocks i'd argue that they benefit overall from it.

That makes sense. I knew there had to be an ROI in there somewhere.

After seeing the salaries of some their software geeks...I think I need to learn to write code.

[rjd970]

Originally Posted by SavageOrangeJug

That makes sense. I knew there had to be an ROI in there somewhere.

After seeing the salaries of some their software geeks...I think I need to learn to write code.

Writing code sucks, that's why I went the design/analyst route. I only dabble in it when I really need to and I don't have time to explain things to a programmer.

However, I guess if somebody will pay me what those guys make I could learn to deal with it.

[SavageOrangeJug]

Originally Posted by rjd970

Writing code sucks, that's why I went the design/analyst route. I only dabble in it when I really need to and I don't have time to explain things to a programmer.

However, I guess if somebody will pay me what those guys make I could learn to deal with it.

You are correct. The guy who was arrested was making $1.2 million a year.

$1.2 million a year will hide a lot of sin.