Taibbi: NYSE ends transparency to protect Goldman Sachs

[D-Mack]

The New York Stock Exchange quietly announced last week that it would end its practice of requiring companies to report all their program trading — a move that helps shield large investment banks, particularly Goldman Sachs, from public scrutiny.

The new rule means the public will no longer be able to tell if large investment banks are manipulating the stock market for their own gain, says Matt Taibbi, the journalist whose Rolling Stone article on Goldman Sachs’ role in asset bubbles over the past century has rocked the financial world.

According to previous NYSE rules, any company that carried out program trading — essentially, large computer-automated trades worth more than $1 million — had to report the trades to the NYSE, which then made the information publicly available.

..

Taibbi argues that the move is designed to protect investment banks from bloggers who are exposing the companies’ stock market manipulations. Goldman Sachs is singled out because the investment bank’s share of principal NYSE trading has gone from 27 percent at the end of 2008 to fully 50 percent of trades in recent months.

Blogs such as Zero Hedge have been using NYSE data to argue that Goldman Sachs now has an almost unfettered ability to control stock prices.

...
http://rawstory.com/08/news/2009/07/...goldman-sachs/

Looks like there is too much free press in the land of the free.

[jtabeb]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

Looks like there is too much free press in the land of the free.

EVERYDAY, all I see is more lies, obfuscation, and bullshit. And NONE of it reported on in the MSM. I'm getting more and more pissed off by the day.

Thanks, Great story link.

[swannmex]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

SUNDAY, JULY 5, 2009

Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?

Posted by Tyler Durden at 5:48 PM

Major developing story: Matt Goldstein over at Reuters may have just broken a story that could spell doom for if not the entire Goldman Sachs program trading group, then at least those who deal with "low latency (microseconds) event-driven market data processing, strategy, and order submissions." Visions of swirling, gray storm clouds over Goldman's SLP and hi-fi traders begin to form.

Back-up: This week's NYSE Program Trading report was very odd: not only because program trading hit 48.6% of all NYSE trading, a record high at least since the NYSE keep tabs of this data, and a data point which in itself was startling enough to cause some serious red flags as I jaunt from village to village in what little is left of Europe's bison country, but what was shocking was the disappearance of the #1 mainstay of complete trading domination (i.e., Goldman Sachs) from not just the aforementioned #1 spot, but the entire complete list. In other words: Goldman went from 1st to N/A in one week.




Even more odd, this "disappearance" comes hot on the heels of what Zero Hedge reported could be potentially a major change to the way the NYSE provides its weekly program trading report. Of course, Ray over at the NYSE immediately replied to Zero Hedge that all was going to be same as always ... Odd, maybe he meant that all is back to normal except the reporting of Goldman's trades. Either way, it might very well be time for proactive readers to again contact the two employees publicly disclosed by the NYSE as lead-contacts on the issue. Readers will recall that it was these same two who were previously steadfastly assuring anyone who would listen that there would be no change at all in data reporting.

Robert Airo, Senior Vice President, NYSE Euronext at (212) 656-5663 or
Aleksandra Radakovic, Vice President, NYSE Regulation at (212) 656-4144

Alas, the just released weekly data proves that either theirs was a material misrepresentation of facts, or Goldman simply suddenly decided to stop transacting with the NYSE, or, what would be even more sinister, Goldman notified the NYSE to scrap all their trading data from the prior week. Why would they do that?

Goint back to Matt Goldstein's story. In a nutshell, on Friday, one Sergey Aleynikov was arrested at Newark airport by FBI agents, as he was coming back from a trip to Chicago (maybe visiting his new employer), on what are basically industrial espionage charges. Sergey, or Serge as his Linked-In account identifies him, was VP of equity strategy over at 85 Broad (or maybe 1 New York Plaza, his detailed Bloomberg Bio page has disappeared) had the following responsibilities at Goldman Sachs according to Linked-In:

• Lead development of a distributed real-time co-located high-frequency trading (HFT) platform.The main objective was to engineer a very low latency (microseconds) event-driven market data processing, strategy, and order submission engine. The system was obtaining multicast market data from Nasdaq, Arca/NYSE, CME and running trading algorithms with low latency requirements responsive to changes in market conditions.
• Implemented a real-time monitoring solution for the distributed trading system using a combination of technologies (SNMP, Erlang/OTP, boost, ACE, TibcoRV, real-time distributed replicated database, etc) to monitor load and health of trading processes in the mother-ship and co-located sites so that trading decisions can be prioritized based on congestion and queuing delays.
• Responsible for development of real-time market feed handlers, order processing engines and trading tools at a Quantitative Equity Trading revenue-making HFT desk.

If the allegations are true, it looks like Goldman's hi-fi quant trading desk was thoroughly penetrated by a "spy", and as readers will recall, Serge(y)'s description of his job duties mirrors what Mr. Ed Canaday conveniently provided to Zero Hedge as a description of Goldman's SLP program. (Sources connected with the office of the United States Attorney have confirmed to Zero Hedge that Aleynikov was at one time or another a Goldman employee.").

The plot thickens: per FBI agent Michael McSwain's sworn deposition, Sergey quit a firm described as "Financial Institution" in the affidavit, which according to circumstantial evidence and according to Goldstein is none other than Goldman Sachs, on June 5, at that time earning $400,000 annually. As Matt reports, he proceeded to move to a Chicago firm engaged in "high volume automated trading" where he would make 3x his $400k salary (Hey Getco, is it time for a formal release at least denying you guys had anything to do with this, cause if you did it might not look that hot. No matter, we have reached out to our sources in law enforcement to confirm or deny Getco's, and Goldman's, involvement: once we get a response we will immediately advise our readers).

In the 5 days immediately preceeding his departure from "Financial Institution" (potentially GS), Sergey allegedly downloaded 32 megs of ultra top-secret quant trading proprietary code, that, according to Special Agent McSwain's affidavit, he then proceeded to encrypt and upload to a website in Germany, with a UK owner. One can only imagine the value of this "code" not only to Goldman but to the highest bidder. After all, from the affidavit: "certain features of the [code], such as speed and efficiency by which it obtains and processes market data, gives the Financial Institution a competitive advantage among other firms that also engage in high-volume automated trading.The Financial Institution further believes that, if competing firms were to obtain the [code] and use its features, the Financial Institution's ability to profit from the [code]'s speed and efficiency would be significantly diminished." Needless to say, many others are now also likely hot on the trail of the code.
What is probably most notable, in less than a month since Sergey's departure from [Goldman?], the FBI was summoned to task and the alleged saboteur was arrested and promptly gagged: if anyone is amazed by the unprecedented speed of this investigative process, you are not alone. If only the FBI were to tackle cases of national security and loss of life with the same speed and precision as they confront presumed high-frequency program trading industrial espionage cases... especially those that allegedly involve Goldman Sachs.

Now the real question here is, does [GS?] feel lucky? Because the code has supposedly been in the hands of an outsider for over a month, one might suspect that anyone who wanted to has had ample opportunity - if the holder(s) wished to sell... Would that have anything to do with the even weirder than usual market action over the past 2-3 weeks: after all it is the very Goldman Sachs (which may or may not be the target of this program trading industrial espionage) which is the primary SLP on the world's biggest stock exchange.

Another major question: do Goldman and the NYSE not have a fiduciary responsibility to announce to both shareholders and any interested parties if there has been a major security breach in their trading operations? Certainly this seems like a material piece of information: given that program trading accounted for 49% of all NYSE trading last week, and Goldman as recently as one week ago represented about 60% of all principal program trading, will this be called an issue threatening the National Security of the United States. Shouldn't all market participants be aware that there is some rogue code in cyberspace that can be abused by the highest bidder, who very likely will not be interested in proving the efficient market hypothesis? What will happened when said bidder goes about trying to front run none other than the "Financial Institution" [GS]?

The complete affidavit can be downloaded from this post here, and is also provided Scribed below as this could (and likely should) become a matter of National Security. Zero Hedge will closely monitor this situation from the European hinterland and provide updates as they come. For really interested readers, we recommend tracking any potentially new developments on the forums and message boards over at Wilmott.

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I don't see where the title "Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?" or the lead phrase " matches the details in the article.

I read the article eagerly looking for the evidence of the pending doom of Goldman, and never found it. It's a mess alright, but how does kill them?

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

Oh - and here's a link to the original post, which has additional images and documentation http://www.zerohedge.com/article/cas...-goldman-sachs.

[rabot10]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I don't see where the title "Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs?" or the lead phrase " matches the details in the article.

I read the article eagerly looking for the evidence of the pending doom of Goldman, and never found it. It's a mess alright, but how does kill them?

They get very afraid as the garlic and silver bullets come there way – so they just die a painful death. How does that sound? I like that ending U?

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I read the scribed affidavit and am now of the opinion that this amounts to nothing at all other than for poor Mr. Sergey Aleynikov.

He wavied his Miranda rights and said that he downloaded more than he intended to, wanting only to get some open source code. He or someone of the same name did indeed author some open source code, visible at http://search.cpan.org/~randir/. I see there assertion and exception handling modules for Perl. The code looks modest and clean enough.

He made copies on a few of his computers and that's it. This sounds entirely plausible and even likely in my view. What he didn't say, that I also expect was likely, is that he expected to make some use of that code when developing more code for his new employer. When a young (well, I don't know Aleynikov's age, but this feels like the actions of someone I would now call young, which is most everyone ;)) programmer has a substantial part of his career value vested in what is for him the most important piece of code he's ever written, it is quite scary to walk away from that code. One really wants to take a copy along to one's next gig. How much one uses or refers to that copied code at the next gig depends on ones morality, legal constraints and other circumstances. In this case, circumstances will deny our young programmer the opportunity to make any use of that code.

He waited until after announcing his resignation to go to a competitor before doing this download. He announced his resignation prior to June 1, affective June 5, and performed the downloads the last few days of his employment, June 1 through June 5. Even a damn fool would not do that if the intention was theft of intellectual property for serious profit. If I were intending to steal for resale such code, I would be on my best behaviour, not even hinting of resigning. One never knows how long one will continue to have access to company computers after resigning; sometimes one is walked to the door and cut off instantly. And even if allowed a final week or two, one would expect to be observed more carefully. Clearly he was motivated by fear of never seeing "his" code again, not by the profit motive of an orchestrated theft.

As written the code would not be of serious immediate use to a competitor. There are two parties to high speed trading, the trader and the exchange. If any major exchange suddenly saw trades coming in from an unlikely trading computer at anywhere near the rate Goldman Sachs was trading, then whomever was top dog would prevail, and the other party would cower in the corner licking its wounds. My money in this dog fight, not even knowing the other party, would be on Goldman.

The affadavit makes explicit mention of some this code that has to reside on the exchange side to interact with the Goldman trading computer in order to achieve such speeds. Another illicit trading firm in possession of a stolen copy of all this code would not have the blessed hooks on the exchange side, so would be quite limited in its ability to use its contraband code.

Also such proprietary code, especially written by young hotshots with other objectives than writing maintainable code, is usually painfully unportable, unmaintainable and unreadable. It usually takes a better programmer than whomever originally wrote the code to unravel the spaghetti and find anything of value therein. Though in this case, given the clean writing style of the above two modest open source Perl scripts perhaps written by the same person, perhaps this code is actually readable.

He was just an enthusiastic programmer afraid to leave his jewels behind.

I still have carefully preserved line printer outputs of such code I took on such motivations myself, decades ago, from firms now long defunct.

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

One more point. I see no reason to connect the problems of poor Mr. Sergey Aleynikov with the removal of Goldman Sachs from this week's NYSE Program Trading report. Given all the negative publicity Goldman Sachs was earning from its premier position on that report, I'm not surprised they got themselves removed.

[Kadriana]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I didn't understand a lot of this thread but they're saying the NYSE might have ended transparency on such trading because someone stole computer codes from them.

http://www.cnbc.com/id/31750907

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I didn't understand a lot of this thread but they're saying the NYSE might have ended transparency on such trading because someone stole computer codes from them.

http://www.cnbc.com/id/31750907

That's another variation of the same reports and conjectures as above.

A computer programmer who worked for Goldman Sachs on their high speed trading software resigned late May with a couple weeks notice, and then in his last few days there, June 1 to 5, downloaded some of the software he had been working on. This software included critical proprietary code for Goldman Sachs trading software.

Independently someone (apparently ZeroHedge first) just noticed that this weeks report on New York Stock Exchange trading volume does not include Goldman Sachs, who usually held the top spot as heaviest trader.

So the conjecture is that these are related, and that Goldman is in some sort of serious pickle because now one of the competitors has that high speed trading software as well. Hence Goldman is having to cover up something really ugly here.

As I explain above, I say phooey. A hotshot programmer didn't want to leave his finest code behind and tried to take a copy of "his" code (we programmers get possessive of the fruits of our keyboard labors) with him. Likely no one else has it, and likely no one else could make much use of it in any immediate or direct way even if they did have it.

I am confident that there is some other unrelated reason that Goldman is missing from the New York Stock Exchange's trading report this week. Probably it is a reason that would not help us here at iTulip much, other than to confirm that Goldman Sachs has bigger brass appendages than most of us.

[Kadriana]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

That's another variation of the same reports and conjectures as above.

A computer programmer who worked for Goldman Sachs on their high speed trading software resigned late May with a couple weeks notice, and then in his last few days there, June 1 to 5, downloaded some of the software he had been working on. This software included critical proprietary code for Goldman Sachs trading software.

Independently someone (apparently ZeroHedge first) just noticed that this weeks report on New York Stock Exchange trading volume does not include Goldman Sachs, who usually held the top spot as heaviest trader.

So the conjecture is that these are related, and that Goldman is in some sort of serious pickle because now one of the competitors has that high speed trading software as well. Hence Goldman is having to cover up something really ugly here.

As I explain above, I say phooey. A hotshot programmer didn't want to leave his finest code behind and tried to take a copy of "his" code (we programmers get possessive of the fruits of our keyboard labors) with him. Likely no one else has it, and likely no one else could make much use of it in any immediate or direct way even if they did have it.

I am confident that there is some other unrelated reason that Goldman is missing from the New York Stock Exchange's trading report this week. Probably it is a reason that would not help us here at iTulip much, other than to confirm that Goldman Sachs has bigger brass appendages than most of us.

My husband is a programmer so I understand the possessiveness part with one's work. I'm a stats person and like numbers and not into conspiracy theories as much. So, are people linking the downtime of the NYSE when it closed 15 min. late to this whole mess too?

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

So, are people linking the downtime of the NYSE when it closed 15 min. late to this whole mess too?

Not yet. If you start seeing such conjectures, perhaps you can take credit for having started that rumor, with your post here.

[blazespinnaker]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I think the simplest explanation is that Goldman Sachs stopped program trading until they figured out this mess.

Think about it... if someone had their code, they could figure out trades that GS was doing and they could arb them.

[ThePythonicCow]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

I think the simplest explanation is that Goldman Sachs stopped program trading until they figured out this mess.

Think about it... if someone had their code, they could figure out trades that GS was doing and they could arb them.

I doubt that, though I really have no inside information.

But to beat GS at their own game here, even with the code, one would also have to have (1) as good a data feed as GS, (2) even faster computation of the front running arbitration, and (3) as good or better an order line back to the exchange.

It would be like me saying I could defend Michael Jordan in his prime, if he told me before hand which way he was going. It wouldn't make any difference. I might as well sit down and enjoy the show. The best I could do on the court trying to stop MJ would be to get myself hurt.

Besides, it's next to impossible for me to believe that GS shut down its program trading for a week.

[jtabeb]

Re: Taibbi: NYSE ends transparency to protect Goldman Sachs

Besides, it's next to impossible for me to believe that GS shut down its program trading for a week.

You did see the thursday close, didn't you?