Goldman Quant scandal

8th Jul '09 by Gradders73

2 comments 2119 reads

Just wanted to make sure people have seen the stuff around the Goldman employee detained by the Fed. It started out that the man involved, Sergey Aleynikov, was arrested for stealing coding from Goldman Sachs. What is alleged is Goldman's computerized quant trading, which was executing something like 45% of all trades in the NYSE, was actually using the data access it has through it's role in the PPT was actually intercepting orders as they were sent to the exchange and trading ahead of them. Call it front running, call it insider trading.

http://market-ticker.org/authors/2-Karl-Denninger

I will post more if I see anything, but the allegations, if true, are shocking and the implications enormous.

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Gradders73

Premium Member

2 comments

demully

9th Jul '09

Ok, so-called "program trading" or "portfolio trading" accounts for 40ish percent of equity trading volumes, a cover-all that captures lots of types of low-cost, high-volume trading. That's a total, not a Goldman number. I know for a fact that Goldman is not the largest trader on NYSE so their PT desk cannot be 45%... the maths just doesn't stack up!

It is possible that Goldman was front-running it's c.8% of the order book that was PT (much of which would have been clients trading automatically via Goldman's access to the exchange), in which case then yes this should put GS out of business. Shut. Kaput. Gone. It's the simple most fundamental abuse of trust out there.

But if the other version of the story, that the employee was trying to sell some algorithms that GS built to trade client PT positions more effectively amid tighter liquidity are true, then that would represent a very different version of events, in which GS is rather a victim. And no conspiracy is required.

Let's see... (unless you think the FBI is rigged/corrupt, in which case why post this anyway? and just buy GS at any price!)

best,

DEM

SW10Chap

9th Jul '09

In reply to demully (post #1)

But if the other version of the story, that the employee was trying to sell some algorithms that GS built to trade client PT positions more effectively amid tighter liquidity are true, then that would represent a very different version of events, in which GS is rather a victim. And no conspiracy is required.

That seems to be the essence of the story to me, at least as far as looking at more reputable* news sources is concerned, although I notice that some blogs have gone a step further.

Sergey Aleynikov's defence at the moment is that he intended to access only open source code and later "realized he obtained more files than previously intended."

Worth bearing in mind also that it was Goldman's who raised the matter with the Justice Department, although I can see that speculation may have been fuelled by them going on to say that "the security of the U.S. financial markets is at stake."

Exaggeration? It seems to have knocked down by the judge, who said “We don’t deal with speculation when we come to court, we deal with facts.”

My hunch is that this story has more a future on the technology pages than the business ones.

SW10

*Bloomberg story here.

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Goldman Quant scandal

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Gradders73

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