Stolen Goldman Sachs Code May Have Had Limited "Shelf Life"
July 10, 2009
The estimated 32 megabytes of proprietary trading algorithms allegedly stolen from Goldman Sachs by a former vice president probably would not have had lasting value, according to an analysis issued Friday by consultancy The Tabb Group LLC.
The code allegedly stolen by Sergey Aleynikov, former Goldman Sachs vice president for equity strategy and computer programmer, likely “has a limited shelf life, whose competitive advantage is diluted with each second it is outstanding,’’ said partner Robert Iati in a Tabb Group Perspective issued Friday titled “The Real Story of Trading Software Espionage.”
Goldman Sachs or any other proprietary trading firm could lose tens of millions of dollars if their strategies are revealed without authorization, Iati said. But such disclosure would only have value for a short time, he said.
That’s because, in high-frequency trading such as this code was designed to execute, “micro-level strategies are constantly altered, growing stale after a few days if not sooner,’’ according to Iati, the firm's global head of consulting.
The main reasons: (a) The speed and volatility of markets is now mean that the relationships and correlations between securities that form the core of algorithmically based strategies often change within seconds of a firm’s ability to implement the “very strategies that exploit them” and, (b) Competitive intelligence is so strongly pursued by rival traders that successful strategies get quickly exposed and are subject to nearly immediate “reverse engineering.” That can turn the “most profitable ideas into (the) most risky.”
That’s fallout from the stakes involved. Tabb Group estimates that annual aggregate profits of high-speed, low-latency arbitrage strategies exceed $21 billion, “spread out among the few hundred firms that deploy them.”
In any case, the Goldman code may already have lost its value. The code may already have leaked onto the Internet.
