Saturday, July 11, 2009

Ableson on Aleynikov

Everyone's favorite whipping boy, Goldman Sachs, and Sergey Aleynikov, the stealer of Goldman's code made it in this weekend's Barron's.

It was nice to see the "mainstream" financial press come to their own conclusions on Goldman's algorithms.

It's "essentially high-tech front running."

Barron's take:

It's a prime example of technology being enlisted in the service of Mammon, and it generates millions of bucks for firms like Goldman.Critics claim that via its special software, Goldman is able to detect huge order positions ahead of their execution, and to profit accordingly; in other words, that high-frequency trading is essentially high-tech front-running.

It's well to keep in mind that Goldman, although hardly without sin, has become a convenient receptacle for everything that's wrong with the world. And heavy-breathing outrage fed by conjecture, a careful study of Blackstone reveals, doesn't constitute evidence.

The hubbub over high-frequency trading grew in intensity and virulence when a slightly befuddled prosecutor told the court, in arguing to keep Mr. Aleynikov in the hoosegow rather than allowing him to make bail, the Goldman code in the wrong hands could lead to "unfair manipulation" of markets. We couldn't help being amused by how ravenously the malapropism was seized upon by hordes of cybernauts, unable to resist the obvious, as suggesting that in Goldman's hands it was used for "fair manipulation."

We'd be remiss in not crediting Tyler Durden and his feisty Zero Hedge blog for early coverage of the Aleynikov affair and helping to make the dog days of summer a tad less doggy. We suspect the folks at Goldman may not concur, but think how dull life would be if everyone agreed.

How about Bloomberg's take?

"Why should all of us trust Goldman Sachs to not use it in unfair ways, whatever those ways are?"

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