Goldman Sachs Code for Auto Trading Stolen

[UrmaBlume 10]

The link is to a story of Stolen code -

 

http://www.bloomberg.com:80/apps/news?pid=email_en&sid=axYw_ykTBokE

 

According to the story the code:

 

"The proprietary code lets the firm do “sophisticated, high- speed and high-volume trades on various stock and commodities markets,” prosecutors said in court papers. The trades generate “many millions of dollars” each year."

 

A little bit of understanding of how such systems operate is the basis for the "Intensity of Commercial Trade" indicator that we have discussed on this forum. This article accurately describes the trading our indicator was built to spot.

[toulouse-lautrec 10]

GATA Urges SEC, CFTC to Investigate Goldman Sachs' Trading Program

 

MANCHESTER, Conn.--(BUSINESS WIRE)--The Gold Anti-Trust Action Committee has urged the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission to investigate the computer trading program of Goldman Sachs Group Inc. that, according to a federal prosecutor, the bank acknowledges can be used to manipulate markets.

 

In its letters to the SEC and CFTC, GATA wrote: "The assistant U.S. attorney's comment can be construed to suggest Goldman Sachs considers its own manipulation of markets to be fair, while such manipulation by others would be unfair..."

 

GATA Urges SEC, CFTC to Investigate Goldman Sachs' Trading Program - Yahoo! Finance

 

GATA is an educational and civil rights organization that seeks to restore free markets to the precious metals.

 

The text of GATA's letters is appended.

 

GOLD ANTI-TRUST ACTION COMMITTEE INC.

7 Villa Louisa Road, Manchester, Connecticut 06043-7541

 

July 7, 2009

 

Gary Gensler, Chairman

U.S. Commodity Futures Trading Commission

3 Lafayette Centre

1155 21st St., N.W.

Washington, D.C. 20581

 

Mary L. Schapiro, Chairman

U.S. Securities and Exchange Commission

100 F St. N.E.

Washington, D.C. 20549

 

 

 

Dear Chairman Gensler / Dear Chairman Schapiro:

 

I'm enclosing a copy of a report distributed July 6 by Bloomberg News Service about the U.S. government's prosecution of a former employee of Goldman Sachs Group Inc. involving the purported theft of a Goldman Sachs computer trading program. The report quotes Assistant U.S. Attorney Joseph Facciponti as saying in U.S. District Court in New York City: "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

 

If the report quotes the assistant U.S. attorney correctly, and if he was characterizing Goldman Sachs' position correctly, then Goldman Sachs claims to have possession of a computer trading program that can manipulate markets. The assistant U.S. attorney's comment can be construed to suggest Goldman Sachs considers its own manipulation of markets to be fair, while such manipulation by others would be unfair.

 

The court proceeding described in the Bloomberg News story would seem to impugn all markets in which Goldman Sachs trades. On behalf of the Gold Anti-Trust Action Committee Inc., I ask your commission to investigate Goldman Sachs' trading program urgently and report its findings publicly.

 

Thanks for your consideration.

 

With good wishes.

 

CHRIS POWELL

Secretary/Treasurer

[BlowFish 10]

I'd like to see a copy of the report, there seems to be some baloney being spouted here. You don't require software to 'manipulate markets' though of course if you are buying and selling in many different markets simultaneously it will make life easier. I smell BS.

 

I guess it depends on your definition of 'manipulate' really. The general definition is to manage or utilise skillfully. The alternative definition adds by unfair means. It's an emotive word, presumably carefully chosen. If you are working a large order your job is to 'manipulate the market' to get the best average price you can. Is high speed statistical arbitrage manipulation?

 

I can't see how a piece of software can add 'unfair means'. Unless it exploits 'shortcomings' of the exchange. Slicing and dicing, choping and changing hardly constitute unfair.

 

EDIT: my favourite quote ‘Preposterous’

Edited July 9, 2009 by BlowFish

[TradeMaker101 10]

Clearly Urma you have some serious kung fu knowledge of neural networks etc.

 

I'm curious to know if how your group has trained something for DOM analysis when at extremes and S&R?

 

Cheers and big it up.

[UrmaBlume 10]

I'd like to see a copy of the report, there seems to be some baloney being spouted here. You don't require software to 'manipulate markets' though of course if you are buying and selling in many different markets simultaneously it will make life easier. I smell BS.

 

I guess it depends on your definition of 'manipulate' really. The general definition is to manage or utilise skillfully. The alternative definition adds by unfair means. It's an emotive word, presumably carefully chosen. If you are working a large order your job is to 'manipulate the market' to get the best average price you can. Is high speed statistical arbitrage manipulation?

 

I can't see how a piece of software can add 'unfair means'. Unless it exploits 'shortcomings' of the exchange. Slicing and dicing, choping and changing hardly constitute unfair.

 

EDIT: my favourite quote ‘Preposterous’

 

BlowFish,

 

The missing component here is time frame. Very short term manipulation of price happens everyday in almost all major markets and a lot of it is done by software.

 

Almost 30 years ago I sat in a trading room were all kinds of ultra short term smaller size actions were taken to facilitate much larger size entries or exits.

 

Today the old "fill-em-up and shut-em-up" or "Sell a few higher to buy a much bigger amount lower" is done by very fast, very sophisticated software that always knows 1) market depth at all levels 2) recent price action 3) the mission - to acquire or distribute x contracts over y price range in z time.

 

Certainly when a huge buyer sells to drive price lower so that he can buy more is price manipulation. It has gone on forever, will always be and today, is best done with software.

 

With the speed of today's markets longer term manipulation requires much greater resources and involves much more risk. Why not just keep the risk down and let your software shave a bit everyday?

[UrmaBlume 10]

Clearly Urma you have some serious kung fu knowledge of neural networks etc.

 

I'm curious to know if how your group has trained something for DOM analysis when at extremes and S&R?

 

Cheers and big it up.

 

Thank you for the kind words.

 

Here is a link to a thread I posted on why we feel that market depth, while useful for execution information, is worthless as an indicator/input.

 

http://www.traderslaboratory.com/forums/f34/why-market-depth-useless-indicator-5501.html

[Trader333 10]

So it is OK for GS to manipulate markets but not anyone else. Quite frankly it is pathetic of them to even start complaining that someone has used unfair tactics (although illegal) to gain something from them when they are using unfair tactics (although legal) in the same way in my view.

 

 

 

Paul

[BlowFish 10]

BlowFish,

 

The missing component here is time frame. Very short term manipulation of price happens everyday in almost all major markets and a lot of it is done by software.

 

Almost 30 years ago I sat in a trading room were all kinds of ultra short term smaller size actions were taken to facilitate much larger size entries or exits.

 

Today the old "fill-em-up and shut-em-up" or "Sell a few higher to buy a much bigger amount lower" is done by very fast, very sophisticated software that always knows 1) market depth at all levels 2) recent price action 3) the mission - to acquire or distribute x contracts over y price range in z time.

 

Certainly when a huge buyer sells to drive price lower so that he can buy more is price manipulation. It has gone on forever, will always be and today, is best done with software.

 

With the speed of today's markets longer term manipulation requires much greater resources and involves much more risk. Why not just keep the risk down and let your software shave a bit everyday?

 

Indeed. The point is that manipulate is an emotive word that is ambiguous in so far as it has two definitions.

 

I would bet pennies to pounds that the algorithms they are worried about are ones that operate in multiple markets and multiple instruments either looking for convergent trades or other 'zero' (haha LTCM!) risk arb type trades. Of course returns are small on these so huge positions must be taken. This is where the relatively simple bit occurs. Grabbing as much liquidity as possible whilst the opportunity remains. Obviously algorithms can help here but that is not the big deal. In other words it's the algorithms that decide what to pile in to not the algorithms that do the piling that are the golden goose.

[diablo272 10]

This is a fascinating discussion. I've always wondered: how do you learn about things like this besides working at a firm that uses this kind of software?

[Copycat 10]

Some serious speculation going on here:

 

Daily Kos: State of the Nation

 

Summary:

Goldman Sachs may just possibly have used security access codes and built a system to acquire trading information PRIOR to transaction_commit time points at NYSE.

 

The profitability of this split-second information advantage would have been and could have been extraordinary. Observed yielding profits at $100,000,000 a day.

 

 

But I'm a layman, can't verify anything of it.

[BlowFish 10]

Interesting find copycat. A couple of different ideas how the advantage might be gained.