Thursday, July 9, 2009
Stealing Goldman Sachs' Thunder
Much has been made of the Goldman Sachs techie Sergey Aleynikov who allegedly stole some of the code for Goldman's killer algorithms. The media is unclear as to whether Aleynikov took code from proprietary trading algos or from the less-sensitive algos it provides to customers. What is clear is that someone now has access to some of Goldman's 'wicked smart' algos. This is less damaging than the press would lead one to believe. The quants at Goldman Sachs are clever enough to quickly develop a 'sniffer' algo to see whether any of the high frequency trading going on looks familiar. They are also paid enough to work nights until they develop some new killer algos. It only takes a few tweaks and fine-tuning to make them better than before, and probably more undetectable. As far as the idea that the algos will fall into evil hands and decimate the US stock markets goes, well that should be purely fantasy. Goldman Sachs is not the only bank out there with clever quants - there are plenty of eyes on this now and any sign of foul play will be spotted almost immediately. The only real worry is whether the other banks will report it, or just play along and rake in the money as well. High frequency trading takes more than one player.