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Former Goldman Programmer's Conviction Overturned

Soulskill posted more than 2 years ago | from the convicted-and-acquitted-millions-of-times-per-minute dept.

Crime 182

i_want_you_to_throw_ writes "The legal woes will soon be over for Sergey Aleynikov, a former Goldman Sachs Group computer programmer who had been convicted of stealing part of the Wall Street bank's high-frequency trading code. A federal appeals court overturned his conviction and recommended acquittal. We previously discussed this story when he was sentenced to 97 months in prison. It will be interesting to see their reasoning (an opinion is to be released) as well as what this may mean for other programmers developing high frequency trading code."

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Shouldn't be legal to use in the first place. (4, Insightful)

tragedy (27079) | more than 2 years ago | (#39076817)

High frequency trading code shouldn't be legal to use for trading in the first place. It doesn't provide anything useful ("liquidity" has no place in an investment system, it's only good for speculative investing, which is just gambling), and simply parasitically leaches from the market and destabilizes it. The people the programmer was working for are the ones who should be convicted.

Re:Shouldn't be legal to use in the first place. (-1, Troll)

Anonymous Coward | more than 2 years ago | (#39076903)

Goldman are faget. They should be convicted for faget and this programmer should be convicted for working for faget. Goldman do not provide useful, they provide stupid haha. Your insightful and I like you so much haha friend.

90% reduction (5, Insightful)

alexander_686 (957440) | more than 2 years ago | (#39076917)

Unless you count a 90% reduction in trading costs as “nothing”.

Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.

I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days

Re:90% reduction (5, Insightful)

Anonymous Coward | more than 2 years ago | (#39077089)

Those fees are only a problem if you don't plan to hold on to your stock very long: after a few years or more of capital value change plus dividends, it's insignificant.

What's that you say? You like to buy and sell on a timeframe of weeks? Well, that's speculation not investment, and we need less of that. I'm happy to have that anti-speculation incentive built-in.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39077323)

Those fees are only a problem if you don't plan to hold on to your stock very long: after a few years or more of capital value change plus dividends, it's insignificant.

What's that you say? You like to buy and sell on a timeframe of weeks? Well, that's speculation not investment, and we need less of that. I'm happy to have that anti-speculation incentive built-in.

That's not necessarily true. If you buy a total of $1000 worth of stock in 4 companies, even the modest $10/trade is costing you $80, which is 8% of your total investment. Now, if you are investing $100,000, then it is probably less of a problem. But, some people want the stock market to be accessible to small investors, and not just really rich people.

Re:90% reduction (1)

dgatwood (11270) | more than 2 years ago | (#39077729)

If you buy stock in four companies, it costs you $40 at $10 per trade, not 80, which is 4% of your investment. Still not small change, but....

Re:90% reduction (3, Informative)

Anonymous Coward | more than 2 years ago | (#39077829)

It's another $40 to sell.... those are trades too.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39077955)

Eventually, you'll want to sell those shares. That's likely where the other half ($40) is coming from.

Re:90% reduction (5, Insightful)

maple_shaft (1046302) | more than 2 years ago | (#39078151)

But as was already said, this is speculative trading and NOT an investment. If you are a small time investor and are trying to engage in speculative trading then you are just asking to be bilked of your money. You don't overhear the chatter on the trading floor. You don't see breaking news happening before it goes public. The day traders and hedge funds will eat your lunch. You might as well be playing blackjack at the casino.

If you are a small time investor you are much better off studying earnings reports and making long term investment choices in blue chip stocks that pay dividends than trying to play the big boy games.

Re:90% reduction (5, Informative)

mrops (927562) | more than 2 years ago | (#39077629)

That is the problem with the entire stock trading mentality. Stocks are viewed as commodity that makes the investor rich, no one views them as investing a company that will succeed with the investor's money.

Re:90% reduction (5, Interesting)

AuMatar (183847) | more than 2 years ago | (#39077911)

Because you aren't. If you were investing in a company, you'd be giving them capital to use for purchasing/hiring/research. Unless you're buying in an IPO or secondary, you're not giving the company any money at all. So it's not investing, it's legalized gambling where you wager on companies, not invest in them

Re:90% reduction (0)

Sun (104778) | more than 2 years ago | (#39078119)

Where are my mod points when I need them?

+1 on parent, please.

Shachar

Re:90% reduction (3, Interesting)

ed1park (100777) | more than 2 years ago | (#39078499)

Warren Buffett has a great solution for this. A 100% capital gains tax on short term investments! (less than 1 year)

Re:90% reduction (5, Interesting)

pclminion (145572) | more than 2 years ago | (#39079101)

So if a company has a good long-term outlook and I buy in, and the stock does well for a period of time, then six months later the CEO dies in a car accident and is replaced by somebody who immediately starts running the company into the ground, I shouldn't be able to exit my position and take what little gains I can before they become losses? You want me to just hold on and get fucked because the situation changed dramatically? Am I supposed to read the future? It's one thing to speculate, it's another thing to be in for a long haul and decide (rationally!) to abort when things take a turn for the worse.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39078597)

That's a bit naive. You're glossing over a pretty substantial relationship between demand for a company's stock (which in truth is a legal claim on retained earnings, not a lottery ticket) and that company's valuation, which directly affects its ability to secure financing.

Re:90% reduction (1)

Solandri (704621) | more than 2 years ago | (#39079079)

You're glossing over a pretty substantial relationship between demand for a company's stock (which in truth is a legal claim on retained earnings, not a lottery ticket) and that company's valuation, which directly affects its ability to secure financing.

For most companies I'd agree with you. But a lot of newer companies like Apple and Google aren't paying dividends (the legal claim on net earnings). You get nothing from owning them (aside from a meaningless vote at a shareholder's meeting). The only way you can get anything from them is by selling them. So they really are a lottery ticket, or as a friend called them, baseball card stocks.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39078985)

Tell me which you'd rather work for, a company that gives its employees equity and the price is going up, or a company that gives equity and the price is going down, assuming they start at the same strike price...

The idea that investors do not benefit a company is ignorant.

Re:90% reduction (4, Insightful)

Zak3056 (69287) | more than 2 years ago | (#39077959)

That is the problem with the entire stock trading mentality. Stocks are viewed as commodity that makes the investor rich, no one views them as investing a company that will succeed with the investor's money.

Given that so many companies don't pay dividends, I can't help but wonder what "investors" are actually investing in? I mean, I'll grant it's not true across the board, but pick any tech company, and if they're making money, it's for the sole purpose of sticking it in the bank. Apple has, what, $100B in the bank? To what end? It's not hard to see why we have this mentality, and why our market is all about finding a bigger idiot.

FWIW, my money says that one day we're going to find that something like the Teamster's pension scandal has happened again.

Re:90% reduction (3, Insightful)

pclminion (145572) | more than 2 years ago | (#39079215)

Given that so many companies don't pay dividends, I can't help but wonder what "investors" are actually investing in?

That's like asking, why have money? Money doesn't pay interest on itself, it just sits there, what good is it? The reason you accumulate it is the same reason you would accumulate stock -- you are betting on the proposition that the money (or stock) will provide sufficient value to be exchanged for things you want.

When I hold on to cash, what I'm doing is betting that prices will go down. If I believe prices will go up I convert that money to something else. So I have a hard time understanding why buying and selling stock simply to profit from movement in price, is any different from the decision to hold money or spend it based on current trends of inflation.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39078983)

"You like to buy and sell on a timeframe of weeks?"

Make that milliseconds.

When they say "high frequency trading" they really do mean mean "high frequency".

Money & speed: Inside the black box
http://tegenlicht.vpro.nl/afleveringen/2010-2011/the-future-of-finance/money-and-speed.html [tegenlicht.vpro.nl]

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39077151)

Unless you count a 90% reduction in trading costs as “nothing”.

Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.

I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days

wow, are you honestly claiming that the "90% reduction in cost" resulted solely from high freq traders?

do you understand what liquidity is? if you did, you would understand how high freq traders only add marginal liquidity to already highly liquid securities...thus there argument of "increased market liquidity" is a joke sense it by creation only exists for small windows of time across a small subset of the market.

Re:90% reduction (5, Interesting)

GlobalEcho (26240) | more than 2 years ago | (#39077299)

For what it is worth, academic research indicates that HF trading significantly increases liquidity. The main people it hurt were the floor-based stockbrokers. There is a natural human tendency to detest the "middleman", who appears to generate nothing of value, in all economic endeavors. One notices it for market makes, car dealers store owners and so on. But middlemen actually do provide a valuable service to society. In Nature's Metropolis by William Cronon there is a fascinating study of the mutual resentment of the wood wholesalers, hardware store owners, and the public in the 1800s, even as everyone was getting much richer and healthier.

Re:90% reduction (0, Interesting)

Anonymous Coward | more than 2 years ago | (#39077621)

Middlemen usually start providing value, but then become entrenched and start to exploit the system often buying government influence to require middlemen. Manual trading on the floor continued well after it made any economic sense, because it helped a lot of powerful people skim money from the market. Alcohol distributors are another great example of such abuse (see three-tiered system).

Re:90% reduction (1)

Anonymous Coward | more than 2 years ago | (#39077811)

"But middlemen actually do provide a valuable service to society." If this were obvious, then why the resentment?

It's because these middlemen use their position to extract more than their fare share of economic gains.

Take US finance today. In a capitalist system, all transactions flow through the financial middlemen, one way or another. The finance industry leveraged this position to extract excess profits to the point where this industry accounted for the majority of profits of all industries in the US. This is why everyone hates bankers today.

The high frequency traders are only the latest incarnation of this. Yes, they add liquidity. But does the value of the liquidity exceed the economic loss incurred to real investors from their tactics? I highly doubt it. If he HF traders contributed the same volume of trades but at a reduced frequency, liquidity would remain unchanged, but this would certainly eliminate any profits. Therefore it is the high frequency tactic itself which is objectionable.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39078159)

Research does show that HFT increases liquidity, the problem is when they do that. Because HFT have no legal obligations to provide a reasonable margin, when market conditions turn south HFtraders will stop providing that liquidity to avoid any risk.

Re:90% reduction (0, Funny)

Anonymous Coward | more than 2 years ago | (#39077179)

I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days

Interesting. Why would you want to return to the good old days at all if the deep liquid market is preferred now? Maybe you want to go back to the good old days after you retire???

Confused.

Re:90% reduction (3, Insightful)

barc0001 (173002) | more than 2 years ago | (#39077245)

I don't think you understand how this works. The high frequency trading is literally placing thousands of orders milliseconds apart and 98% of the orders don't get filled or get rescinded, basically it's like spam. Algorithmic trading causes values to adjust outside of normal market forces, and there's strong suspicion that it was the cause of the 2010 Flash Crash.

Re:90% reduction (4, Informative)

Rockoon (1252108) | more than 2 years ago | (#39077443)

The New York Times wrote [that] the joint report then noted "Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling." As computerized high frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000." These extreme prices also resulted from "market internalizers," firms that usually trade with customer orders from their own inventory instead of sending those orders to exchanges, "routing 'most, if not all,' retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity."

2010 Flash Crash [wikipedia.org]

Re:90% reduction (1)

alexander_686 (957440) | more than 2 years ago | (#39077773)

OK – what point are you trying to make? O.k. So where do you want to go from here?

One choice is to go backwards and have a few oligopolies dominate the role of market makes or we could go with the free market idea that anybody with a million dollars and a computer can become a market maker.

Double Plus: On average, the costs are lower. Both explicit and implicit. Do HF trades make gobs of money by being “vultures?” Yes – but a lot less than under the old system with a few chummy opaque market makers.

Minus: “Flash Crashes” – rare and infrequent things.

So, about 99.9% you are better off with HF. I think this is a call for tweaking the system rather than an overhaul of the system.

Side Note - Volatility is up on average. Stock prices swing up & down faster. Hard to pull away all the causes, but I think the HF people are part of the issue.

Re:90% reduction (4, Interesting)

barc0001 (173002) | more than 2 years ago | (#39078219)

Actually, it would be better to simply get rid of algo trading by adding a $0.001 "tax" to each share traded. That would affect "real" trades very little, but would completely obliterate the profitability of algorithmic extreme-transaction-volume trading. To be absolutely clear we are not talking about your ability to trade stocks yourself through something like E-Trade, we're talking about brokerage houses doing hundreds of thousands of transactions per day trying to carve additional profit for themselves. Have a look at this TED Talk on the matter that was posted to /. a while back for some further perspective.
http://www.ted.com/talks/kevin_slavin_how_algorithms_shape_our_world.html
The relevant bit starts at around 2:45.

Re:90% reduction (1)

alexander_686 (957440) | more than 2 years ago | (#39079191)

Interesting talk, but I think you are kind of missing my point – it’s about the implicit cost – the bid/ask spread.

There are explicit costs. When you buy a stock at your broker (say E-Trade) there will be a commission for that trade (say $10).

Then there are implicit costs. When you trade a stock there is a bid / ask spread. For stock X say $100 / $100.25. In this case the market maker basically picks up $.25 per share basically risk free.

You won’t see that cost on your trade ticket – but you want that spread to be as low as possible. So what’s the best way of doing this?

Well, over the past 30 years we have gone from
          a single market maker on NYSE stocks who would pick up $12.5 per stock to
          a liberalized system with dozens of market makers who would pick up $.05 per stock to
          scores of HF trades who pick up $.001 per stock.

If not HF trading, then what? What would be a better configuration in terms of safety / cost. I don’t think a Tobin Tax or trading tax would work – it’s so easy to move your trades overseas that the entire world would have to agree – something that small markets looking for an edge would go for.
I have technical issues with HF trading, but not philosophical ones. HF trading has more – and less – affect on the system then you think. The majority of stocks are still held by long term holders – so little affect there. What is happening is that the velocity of shares held by short term holders is radically increasing.

Re:90% reduction (2)

ak3ldama (554026) | more than 2 years ago | (#39078005)

It seems so basic, that any sell or buy order would have associated with it a price limit, why would anyone blindly say to "sell these X shares at any damn price you can!" is beyond belief. What is the point of liquidity when it comes at the cost of stupidity? If you base your view of behaviors off that of individuals this would be immediately, or rather abruptly, be brought to attention. Why would a farmer decide to sell his 10 bushels of oats for only 1/10th (or less!) of what he previously determined it to be worth?

Back to point, why should anyone else care if particular entity sells a large number of a given item and exhausts the buyers market? You can choose to determine that regardless of what they did, you still believe it to be worth holding onto. It is as if it were an involuntary loss of freedom - the algorithm says sell it!

Re:90% reduction (1)

Anonymous Coward | more than 2 years ago | (#39077585)

Algorithmic trading causes values to adjust outside of normal market forces

The known facts are that the 2010 flash crash was caused when automated traders left the market as a reaction to an extreme stock dump by a non-automated trader (A sell order for 75000 shares of E-mini S&P by a mutual fund) that literally exhausted the supply of buyers, and not as you claim because the high frequency traders were in the market.

If you dont like market speculation so much.. then why are you speculating now? I guess its OK to speculate when all you are doing is posting without facts?

90% reduction? Who cares? Gamblers! (4, Insightful)

s-whs (959229) | more than 2 years ago | (#39077331)

Unless you count a 90% reduction in trading costs as âoenothingâ.

Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.

I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days

(- infinite, moronic)

Who gives a damn what percentage some trader wanted? For one it's all mostly automated so fees should be very low now, and for another, if you don't need to/want to buy/sell frequently then the small charges are a non issue. They are only an issue if you want to trade a lot because you want to gamble on changes in values of stock. So the original poster was right, high freqeuncy trading is valueless and should be disallowed. It's gambling, and not just simple gambling, but gambling that destabilizes economies.

Re:90% reduction (1)

Anonymous Coward | more than 2 years ago | (#39077353)

I congratulate you on being exactly correct. As for the grand parent; it always amazes me that people have such strong opinions on an issue they know nothing about.

Re:90% reduction (1)

Bengie (1121981) | more than 2 years ago | (#39077369)

Wish I had points for alexander_686. Even if not correct(not saying it isn't), it is a very good argument. I have never heard it from that view point before.

Re:90% reduction (4, Insightful)

boorack (1345877) | more than 2 years ago | (#39077931)

You assume that they provide liquidity which is not true with HFT and that $.01 a share cheap which is also not the case for HFT traders.

Regarding liquidity, HFT provides an illusion of liquidity. When a bunch of computers banging, say, 500 shares between themselves over and over again 500 times a day will generate 250000 volume but this does not mean that market is so deep. You see, there are only 500 shares in use. When some big, traditional (institutional?) investor fooled by this artificially high volume decides to sell 100000 shares, it will impact market much higher than if that 250000 (or even half of that) was a real volume. To make thing worse, computers trading these shares will propably detect and try to take of this incurring even more losses to investor (potential gains for HFT trader) and potentially cause some form of flash crash. In the end, traditional investors typically get much worse off with HFT than without HFT, even seeing [lack of] real volume.

Regarding $0.01 - remember that this is $0.01 times billions. It results with hundreds of millions of dollars getting sucked off market by HFT operators instead of being directed into actual, productive investments (thing that stock markets are supposed to be created for). That this money is sucked off penny by penny does not matter. It's still real investments deprived of hundreds of millions of dollars every day by Goldman Sachs and its cronies.

In my opinion HFT is a fraud, nothing more. The fact that it's (still) legal is just a sign how corrupt whole system is.

Re:90% reduction (0)

Anonymous Coward | more than 2 years ago | (#39078587)

Ya, fucking gamblers like you need to just go away. Thank you very much for your help in ruining the worlds economy fucktard!! ?The entire existence of these markets is a joke. Its a game invented to allow those with deep pockets to enrich themselves. It serves NO OTHER PURPOSE. Now please go choke on a small childs toy. Please.

Re:Shouldn't be legal to use in the first place. (2, Informative)

Anonymous Coward | more than 2 years ago | (#39076943)

"liquidity" has no place in an investment system, it's only good for speculative investing, which is just gambling

I don't understand it, therefore it's bad.

Liquidity is really important. It's the ability to resell an asset. Buy and hold forever is great for Warren Buffet, but it is not so great for investors who want to sell stock in the future to finance their retirement or their kid's education.

Re:Shouldn't be legal to use in the first place. (1)

HomelessInLaJolla (1026842) | more than 2 years ago | (#39077083)

It's the ability to resell an asset

That's it. Call the DMCA. You are clearly a terrorist.

Oh, and this [slashdot.org] should be Whitney.

Re:Shouldn't be legal to use in the first place. (5, Insightful)

maroberts (15852) | more than 2 years ago | (#39077211)

If you want to finance your retirement or your childs education, you don't need to sell shares every 5 seconds, so liquidity means little in this regard. It would not be the end of the world having to wait a week or two for money for such purposes.

Re:Shouldn't be legal to use in the first place. (2)

KiloByte (825081) | more than 2 years ago | (#39077235)

And even more important, you would get the full money, instead of a significant part being lost to crooks running HFT. Every penny earned by them is a penny lost by actual investors.

Re:Shouldn't be legal to use in the first place. (1)

Anonymous Coward | more than 2 years ago | (#39077427)

I think you don't understand how markets work.

High frequency traders are able to buy stocks because they offer sellers a slightly higher price than they would have gotten otherwise, and they are able to make sales because they offer buyers a slightly lower price than they would have gotten otherwise. They are attacking the difference between the bid and ask prices. What is commonly called "the spread". HFT gives both buyers and sellers a better deal.

You should read up on free markets. They're pretty awesome.

Re:Shouldn't be legal to use in the first place. (1)

Anonymous Coward | more than 2 years ago | (#39077825)

No, what they actually do get access to buy and sell offers before the market at large because they get first priority for orders coming in from smaller markets. They use those fractions of a second to make purchases and then sell them for a fraction of a percent of profit... only they do it thousands of times per day. So they have access to data that the average person can't get to (a buy/sell order is hitting the market) and they get to act on that before the rest of us. Read up on HFT, it's pretty un-awesome.

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39077899)

And are the cases where they "offer sellers a slightly higher price than they would have gotten otherwise" the same cases where they offer buyers a "slightly lower price than they would have gotten otherwise"? Because the two would seem to be mutually exclusive.

Re:Shouldn't be legal to use in the first place. (1)

dgatwood (11270) | more than 2 years ago | (#39079005)

HFT pulls the price more quickly towards the middle, but that does not mean everyone gets a better deal. Eventually, either the buyers, the sellers, or both would have been forced to move higher or lower in order for the transaction to occur. Therefore, the HFT just speeds up what would inherently have occurred eventually without their assistance.

As a result, the profits from doing so come by creating a profit spread where otherwise those parties would have met in the middle without that distance. Therefore, the sellers make less than they would have made if they had waited for a real buyer to meet them halfway, and the buyers pay more than they would have paid if they had waited for a real seller to meet them halfway.

HFT transactions are parasitic in nature, taking money from the system while contributing nothing other than increased market volatility. You should read up on unregulated free markets. They're anything but awesome. I don't think you understand how markets work....

Still 90% (1)

alexander_686 (957440) | more than 2 years ago | (#39077407)

But it does matter even for low cost long term investing..

Let say you are investing for the long haul in low fee index funds (Mutual for ETF). Take a look at their cost structure for the past 20 years. The annual expense ratio has dropped from 1% to less than .1%. If you tear apart the public disclosures you will see that about 20% of that drop comes from explicate trading costs.

My gut instinct says that another 30% can be attributed to implicit costs.

Re:Shouldn't be legal to use in the first place. (2)

tragedy (27079) | more than 2 years ago | (#39077855)

I should have said "high liquidity" then. Obviously we shouldn't eliminate the ability to trade and sell stocks. But the argument always given for what high-frequency trading actually provides the market is "high liquidity". That isn't desirable at all in actual investing. High liquidity just means instability. Algorithmic trading in general just leads to instability.

Real growth of wealth comes from capital actually being used for real things. The stock market can help wealth grow by providing capital to accomplish real things. All the secondary activities of the stock market, however, don't provide any real benefits, they just move money around, often to the detriment of real wealth creation.

Re:Shouldn't be legal to use in the first place. (1)

Anonymous Coward | more than 2 years ago | (#39076981)

You can't argue against high frequency trading while attacking something as fundamental as liquidity. You really have no understanding of what you're talking about your presumed political ideology has produced a very dogmatic opinion.

Re:Shouldn't be legal to use in the first place. (2)

greg1104 (461138) | more than 2 years ago | (#39077379)

True liquidity requires that trades be backed by some ownership. HFT only provides the illusion of liquidity in one direction--that which the stock is moving in. Where they truly a source of liquidity, in both directions, high-frequency traders would have helped minimize the impact of the large sell orders that started the 2010 Flash Crash [wikipedia.org] . Instead, they helped create that crash.

Re:Shouldn't be legal to use in the first place. (3, Insightful)

Anonymous Coward | more than 2 years ago | (#39077507)

HFT PROVIDES NO LIQUIDITY DURING A LIQUIDITY CRISIS!!! one would think we would have learned this form the May 5 micro crash.
holy fucking shit get out from under your rock. the HTF algos are programmed to turn OFF any time Liquidity is really needed. Your ignorance to think firms would provide liquidity during a crisis shows you have no understanding for a corporations value in surviving and making a profit.

http://www.zerohedge.com/news/example-hft-liquidity-10-bid-ask-spread-14-stock

http://www.zerohedge.com/article/all-you-need-know-about-hft-sell-everything-and-shutdown

http://www.zerohedge.com/article/60-minutes-brings-hft-mainstream-cftc-refutes-hft-liquidity-provisioning-argument
  "HFTs traded over 1,455,000 contracts, accounting for almost a third of total trading volume on that day. Yet, net holdings of HFTs fluctuated around zero so rapidly that they rarely held more than 3,000 contracts long or short on that day." Said otherwise, Liquidity-to-Volume ratio: 0.00206%.

also it a crime to trade against the HFT machine so it really is a rigged casino.

for all you math lovers out there. here an htf algo gone wild with pretty charts as it works to destroy price discovery:
http://www.zerohedge.com/article/story-berserk-nat-gas-algo-just-got-really-strange (last chart is the best)

http://www.zerohedge.com/article/another-algo-gone-wild (price is $2.50 and $8.50 depending on where you ask and locations are seperated by about 12 milliseconds of travel time) there goes price discovery and liquidity.

here come of the best math porn i scene in a while.
http://www.zerohedge.com/article/its-not-market-its-hft-crop-circle-crime-scene-further-evidence-quote-stuffing-manipulation-

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39077973)

I rather should have said "high liquidity" rather than simply liquidity. I don't believe that investors should be stuck with their investment forever even if someone else wants to buy it from them. I was simply referring to the fact that the usual answer for what benefit high frequency trading systems provide is "high liquidity". High liquidity in an investment market means that investment is secondary to speculation, which is a very dangerous thing. The "product" that high frequency traders provide is less than worthless.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39076989)

It doesn't provide anything useful, it's only good for speculation, and it leaches from society.

Sounds an awful lot like gambling. Should that be illegal too?

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39077065)

If the casinos are cheating and rigging the system where you can never win, yes. It's tantamount to fraud and theft.

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39078179)

Well, actually, the casinos are allowed by law to cheat and rig the system so that you can statistically never win. The various jurisdictions they're in set minimum payout odds for the whole casino. Usually something like 75% I think. That's why the slot machines are so important to the casinos. They're rigged for adjustable payout odds to balance out the rest of the casino. Sometimes they'll be up over 100% to balance out a lot of people losing at the craps tables, and other times they'll be down low below the casino's minimum payout because people are doing well at other gambling activities.

Random distribution sees to it that there are some winners and some losers, but the rigging makes sure that the losses outweigh the wins. In a lot of ways, an illegal bookie can be a lot more honest and up front than a casino. Overall though, the investment system should not be like either of those things.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39077071)

Um, gambling IS illegal. Unless you're in Las Vegas.

Re:Shouldn't be legal to use in the first place. (1)

ackthpt (218170) | more than 2 years ago | (#39077107)

Um, gambling IS illegal. Unless you're in Las Vegas.

Or an Indian Tribe or a state running lotteries (which really pay a tiny pittance to schools.)

Re:Shouldn't be legal to use in the first place. (1)

secret_squirrel_99 (530958) | more than 2 years ago | (#39077165)

Um, gambling IS illegal. Unless you're in Las Vegas. Or an Indian Tribe or a state running lotteries (which really pay a tiny pittance to schools.)

Or you know, any other state except Utah. 49 of the 50 states have some form of legalized gambling including 19 that allow commercial casinos, and many others that have reservation casinos.

Re:Shouldn't be legal to use in the first place. (1)

elgeeko.com (2472782) | more than 2 years ago | (#39077451)

Or on a Casio Boat like in Missouri, which can be in a nearly landlocked pond on the edge of the river.

Re:Shouldn't be legal to use in the first place. (2)

meerling (1487879) | more than 2 years ago | (#39077717)

The state run stuff is the government, and you know how they like to run themselves under different rules than their populace.
The indian casinos are only due to the tribes having sovereignty, in other words, they are state ran, it's just a different government than the USA government.
Nevada being legal for non-government gambling is pretty odd. I think Atlantic City is the only other place that allows that kind of stuff in the US.

The gambling that is allowed in other places and circumstances in the US, is not commercial. It's in the personal entertainment category, and sometimes it's actually legal, other times it's just ignored by the police. Yes, that's right, in most places in the US, that saturday night poker game or church raffle are usually not legal, but the cops don't care and won't enforce the laws on those types of situations. On the other hand, start a casino, or get too big, then see what happens.

ianal, nor an expert on gambling, I've only looked into it a little bit back when the indian casinos started popping up out here, so if it really matters, go do your own research and treat mine as 2nd hand rumor :)

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39078079)

I'm actually of the opinion that vices such as gambling should not be illegal as long as they're clearly labelled as what they are. My opinion that they should be allowed is despite the fact that I've seen gambling addictions utterly destroy people. Also, I should note that gambling mostly is illegal in the US. The prohibition of it (and the nature of the exceptions that are granted) really haven't made things better.

So, anyway, gambling should be allowed, but _not_ in investment markets. If people want to gamble on stock prices, that's fine. They should be allowed to set up betting pools on anything. The activity should just be separated from the actual investment market as much as possible.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39078171)

Most people are fine with gambling, but the public is told that this is "investment", and that Sachs et all are "investment banks".

If they are actually gamblers, fine, put that on TV right after the poker tournament. Just let's call it something other than investment.

Investment is related to production, while gambling is not.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39077001)

All usage of the stock market is nothing short of gambling.
It is by no means clear that HFT action destabilizes the market. The flash crash was not caused by HFT action. Many very s_l_o_w electronic systems generated sell orders based upon one corporation dumping on the futures market.
Either way, this discussion is off topic.

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39078307)

HFT is not the sole culprit. In general any computerized algorithmic trading system is a problem. Investing should be done by examining the actual realities of the market (not the stock market, the real market) and the company being invested in. People can claim that the numbers in the stock market reflect the real world, and they do in part _unless_ you have algorithmic trading going on in the stock market above a certain threshold. Once you get to a certain point where enough of the trades are being done automatically, then all the data available for the computers to make decisions is being generated by the actions of other computers using that same pool of data to make decisions. This results in all kinds of weird emergent effects. Reality drops out of the equation and you instead get strange attractors, feedback loops, chaos. Many of these systems are designed to detect when things have gotten weird, but this doesn't make things better, because they're usually designed to then enter some sort of failure mode and dump their way out of the market as fast as possible, which leads to a cascading figurative (though possibly literal) run on the bank.

As for the discussion being off topic, I don't think it is. This trial has a lot to do with the secretive, conspiratorial nature of the industry. This is an industry that is very quick to try to see people prosecuted for behaving in ways that are very, very similar to the way they operate.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39077239)

Make high frequency code illegal and only criminals will use high frequency code.

Re:Shouldn't be legal to use in the first place. (1)

kiwimate (458274) | more than 2 years ago | (#39077395)

Your comments about liquidity make me think you don't fully understand how banking works. Actually, it makes me think you have close to zero idea about how banking works. No liquidity = everything stops happening. Everything. Businesses shut down.

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39078395)

My statement was a reference to the claimed product of high frequency trading: high liquidity. I should have said "high liquidity" rather than just "liquidity" to be more clear. I don't actually think that people shouldn't be able to buy and then later sell their investments. Rapid buying and selling of investments is, however, a clear sign of people gaming the system rather than making investments. Where you actually draw the line is a bit tricky, but if you need to buy and then sell a stock in less than say a month without any notable events occurring in the business you bought stock in or the market they operate in, then you're not investing, you're playing a gambling game with other so-called investors.

Re:Shouldn't be legal to use in the first place. (2)

the eric conspiracy (20178) | more than 2 years ago | (#39079177)

You are just wrong and your comment has been moderated up by people who have no knowledge of reality. High liquidity and maintaining equal prices across markets through arbitrage are valuable positive features of any trading environment that are enhanced by HFT. They assure you that you will be able to quickly get a fair price for your assets when you want or need to sell. Without these features your investments are far more risky and thus are worth less.

You really need to read up on basic principles of investing. In particular the concept of why liquidity is more important than either safety of capital or return.

ROFL (0)

Anonymous Coward | more than 2 years ago | (#39077841)

"liquidity" has no place in an investment system, it's only good for speculative investing

I almost fell off my chair. Liquidity is extremely important to both "speculating" AND "investing" (which is really just long-term speculation).

Let's go back in time to late July of last year, and tell all of those long-term "investors" tripping over themsleves to sell that liquidity has no place in their strategy. You'd be lucky to get a scowl instead a solid punch in the face, even from the ones who DID manage to avoid huge losses.

Re:Shouldn't be legal to use in the first place. (4, Insightful)

Tuan121 (1715852) | more than 2 years ago | (#39078315)

It really doesn't surprise me what gets modded "insightful" here these days.

Liquidity has no place in an investment system you say? So you mean, if you have some shares of Apple and you want to sell them, you should have to try to shop around to sell them and pay a large transaction cost just to get rid of something that has a market value? And how is that market value determined if there are not people actively trading the product? You can say a widget is worth $100 million, but until someone actually buys it for that price it's just imaginary.

And speculative investing is not good you say because it's gambling. Hmm, so what is buying shares of a new start-up company then, this would be investing, but not gambling?? I don't think you understand that both are in many ways the same thing. Investing IS gambling in every single way.

Re:Shouldn't be legal to use in the first place. (1)

tragedy (27079) | more than 2 years ago | (#39079105)

The "liquidity" that I was referring to that has no place in an investment system is the supposed "liquidity" that HFT claims as its "product". Clearly some liquidity must exist, but that which HFT provides is largely illusory and completely unnecessary in any case. In reality, they're actually probably reducing real liquidity.

As for investment being gambling. Proper investment is indeed a gamble based on educated guesses about a company and the market it operates in (not the stock market its stocks are sold in). All activities in life are gambling by that token. The same thing can be said of the term speculation. All investing is speculative based on the common usage of the word. When investing becomes an unacceptable form of gambling is when it becomes a game played between investors where the realities of the company invested in are almost irrelevant. When people are investing not because they think a company will succeed and profit, but because they think other people will invest as well and drive up the stock price and create an opportunity to maybe sell at the peak before everyone else does, that's what is meant by the term "speculation" in stock market terms. That's the bad gambling that leads to boom and destroys the whole point of the stock market, which is to provide capital.

Human nature makes stock market speculation virtually impossible to eliminate and speculative practices have become very heavily ingrained in the way stock markets operate (for example, the fact that most stocks don't pay dividends), but it still performs its function of providing capital. The more it veers towards speculation and gambling, however, the more dangerous it gets. The recent sub-prime mortgage crisis happened largely because investors made extremely poor decisions because there were so many layers of abstraction between the "investment product" they invested in and the actual real-world thing they were investing in.

Certain cheerleaders for certain economic practices love to point at how many rich people there are and say: "Yay, the economy must be doing well and everyone must be prospering for there to be so many rich people." When it's pointed out that those rich people could have become rich by making a lot of people poor, it's pointed out that the economy isn't a zero sum game and that wealth creating economic activity benefits everyone. There's some truth to that, but it's not always true. You can have lots of rich people by enriching everyone and you can also accomplish it by impoverishing nearly everyone. How the money moves ends up being very important. The stock market, operating as a gambling casino, is a zero-sum game. Some people make money, some people lose money, and some middle-men take a cut. Operating as a pure means of providing capital, it isn't a zero sum game (as long as you're not doing final accounting at the end of the universe, anyway). Capital allows companies to perform wealth-creating activities. The stock market, as it stands, is a hybrid of both and the zero-sum gambling aspect of it does actually fulfil a role. It draws investors in. This means that the actual amount of money involved is a lot greater, which makes more money available for capital. If the amount of speculation is too high, however, there's too much instability and the capital aspect suffers. This is obviously exacerbated by excessive leveraging of assets on the part of the companies involved. If they behave recklessly under the assumption that their stock will always grow, then they can collapse very suddenly if their stock price drops. It also leads them to poor decisions when they're dependant on their stock price growing just to stay in business.

Re:Shouldn't be legal to use in the first place. (0)

Anonymous Coward | more than 2 years ago | (#39079179)

That's good point. Should you be able to bet every microsecond in the horse race too, with a real time betting odds, until the first horse crosses the finish line :D Everything you say is true and this is part of why economics are so fucked up nowadays.

Hi guys (-1)

Anonymous Coward | more than 2 years ago | (#39076819)

Would you like to be facebook friends?

In essence (5, Interesting)

Anonymous Coward | more than 2 years ago | (#39076905)

He took a copy of the code of an internal tool, not something that they sell to customers. Would you really consider it evil to save a copy of your log viewer, for example? The law was intended to protect sold products.

Re:In essence (1)

HomelessInLaJolla (1026842) | more than 2 years ago | (#39077033)

Ask Oprah about the difference between number of copies sold vs. number of copies purchased (or, even: number of copies printed).

Oh wait...

Re:In essence (4, Insightful)

alen (225700) | more than 2 years ago | (#39077055)

he didn't take a log, he took the algorith and source code that took years to develop and which was meant to be used only internally

this is like a Moto engineer taking a new antenna or radio noise reduction algorithm and going to apple with it hoping to get paid $$$$$

Re:In essence (5, Insightful)

maroberts (15852) | more than 2 years ago | (#39077121)

If you produce a product as part of work for hire and then steal that code and sell it on to a third party, it's still a form of theft.

It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise; I'm surprised he didn't do so. Once you know how something is done, you have solved the hard part and can spout a new set of code out of your head with little difficulty. Often producing a product the second time means you can do things better and faster anyway.

There's a lot of blurring between personal and work computers nowadays, which does mean you may have a copy of stuff you have developed on your home PC, and that can make things awkward. But if you do mean to sell something you've worked on to another party, you'd damn well better make sure that right is in your contract.

Re:In essence (1)

jpapon (1877296) | more than 2 years ago | (#39077445)

I agree there is nothing illegal about walking out and reproducing algorithms you have learned. If you really understand and can reproduce the entirety of some Wall Street company's HFT codebase from memory, you deserve to be rich.

Problem is, that's alot of code, and the people smart enough to reproduce it probably don't care enough to do this.

Reproducing algorithms is dangerous ... (3, Insightful)

perpenso (1613749) | more than 2 years ago | (#39077873)

I agree there is nothing illegal about walking out and reproducing algorithms you have learned.

Nope. If those algorithms represent the trade secrets of your former employer then it is illegal to disclose them. For example **undisclosed** details on when to bid and how much to bid given market conditions.

General knowledge is transportable. How to optimize C and assembly code, how to optimize network communications, **publicly available** details on when to bid and how much to bid given market conditions.

Re:Reproducing algorithms is dangerous ... (1)

jpapon (1877296) | more than 2 years ago | (#39078747)

That's the point. It's just as idiotic as software patents. Even more so, because it's not actually even patented.

I call into question any contract which states that you can't use your own personal knowledge once you leave a company. That's just like those silly non-compete clauses which won't hold in court if you change geographical regions. A non-compete clause can't prevent you from working everywhere on the planet, just like a Wall Street company can't prevent you from developing an algorithm for another company somewhere else on the planet.

I'm no lawyer, but I have a hard time believing there are actually laws in place that prevent you from exercising un-patented knowledge just because some company considers it "theirs".

Re:In essence (1)

tqk (413719) | more than 2 years ago | (#39079247)

If you really understand and can reproduce the entirety of some Wall Street company's HFT codebase from memory, you deserve to be rich.

Problem is, that's alot of code, and the people smart enough to reproduce it probably don't care enough to do this.

Considering what we've seen lately of Wall St.'s abilities, I'm not willing to rate them that highly.

if ( ( $price < $expected_price ) && yada() ) {
      buy();
  } elsif ( ( $price > $expected_price ) && yada() ) {
      sell();
  }

How much more difficult can it be? People who spend all their time focusing on mere money can be pretty foolish (and generally are, from what I've seen). I wouldn't be surprised to learn that a few slick talking programmers are laughing themselves all the way to the bank.

Re:In essence (0)

Anonymous Coward | more than 2 years ago | (#39077605)

There's a lot of blurring between personal and work computers nowadays, which does mean you may have a copy of stuff you have developed on your home PC, and that can make things awkward

I can tell you quite definitively that at Goldman Sachs, there is no blurring between personal and work computers. The only external access permitted is with locked down devices or remote desktop type technology with data transfer and copy/paste functionality disabled. While there are always technical workarounds for these things (e.g. screen scraping), such an act would demonstrate willful circumvention of company polices.

Trade secrets may never be shared (1)

perpenso (1613749) | more than 2 years ago | (#39077787)

It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise

Only the general knowledge in his head. Knowledge that represented trade secrets of his past employer are still protected and may not be shared.

Re:In essence (1)

maple_shaft (1046302) | more than 2 years ago | (#39078467)

It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise

You sure about that? Ever heard of a Non-Disclosure Agreement or a Non-Compete Clause? As a software developer I have had to sign at least one of these at every single job I have ever had.

Re:In essence (0)

Anonymous Coward | more than 2 years ago | (#39078651)

>it's still a form of theft.

Please cite a criminal statute that designates it as "theft."

I'll grant you that it could be intellectual property infringement, or that it could be a breach of a contract, or that it could abridge someone's rights under patent, copyright, or trademark law. But I'm not able to get anywhere near "theft" and I will make any bet you can cover that you will not find it defined as such in any criminal statute.

Re:In essence (0)

Anonymous Coward | more than 2 years ago | (#39077515)

Who says the law was intended to protect sold products?

If that was the intent, don't you think the law would make a distinction between sold products and internal code?

Plenty of things are absolute trade secrets and not sold because they make a lot of money in-house. You're suggesting tools like that are fair game for you to walk away with? Perhaps you should advise your employer of your opinions in this respect. You can save a copy of your log viewer if you ASK to save a copy of your log viewer AND THEY SAY YES. Otherwise, you're breaking the law, and breaching the trust placed in you, and depending on circumstances, yes, it could be considered evil.

Re:In essence (1)

tqk (413719) | more than 2 years ago | (#39077875)

The law was intended to protect sold products.

From what I've read of this so far, I've no idea wtf that law was intended for, and he appears to have gotten off on a technicality, or the jury just didn't have a clue as to what was going on:

During his last final days at Goldman, Mr. Aleynikov uploaded source code to a server in Germany that allowed him to do an end run around the company's security systems. He was arrested shortly thereafter.

At trial, Mr. Marino, the lawyer for Mr. Aleynikov, acknowledge that his client breached Goldman's confidentiality agreements, but insisted that he did not commit a crime.

Federal prosecutors portrayed Mr. Aleynikov as a thief who stole Goldman's closely guarded code to help his new employer. After a two-week trial, the jury deliberated for just three hours before reaching a unanimous guilty verdict.

Weird. Why GS didn't sign him to a non-compete agreement I can't imagine. Six figure salary, walks away to competitor, and all you have to fall back on is some weird, obscure banking law?!? WTF? GS is that lax? Really?!?

HR fail.

relax people it's a technicality (3, Interesting)

alen (225700) | more than 2 years ago | (#39077027)

his lawyers convinced an appeals court that coding for a system meant to buy and sell stock across state and international borders wasn't "interstate commerce"

I suspect congress is going to amend this law soon

Re:relax people it's a technicality (1)

julesh (229690) | more than 2 years ago | (#39077103)

a system meant to buy and sell stock across state and international borders wasn't "interstate commerce"

It isn't. I don't imagine any of that stock ever left the state of New York.

Re:relax people it's a technicality (0)

Anonymous Coward | more than 2 years ago | (#39077311)

Totally agree. Lots of programmers also work from home, which means there's latent copies of code floating around as well. Is that theft?

There's a difference between that and specifically packaging up source code to take and use it to get a better paying job.

Right to code ends with employment contract ... (0)

Anonymous Coward | more than 2 years ago | (#39078183)

Totally agree. Lots of programmers also work from home, which means there's latent copies of code floating around as well. Is that theft?

When your employment contract ends and you fail to turn over or destroy the copies, as most contracts state, yes.

I once worked on a complicated solo project at one employer. We separated on good terms and there might be the occasional odd question regarding this project. I would need the source code as reference. I asked for and received a letter from the VP of engineering to hang on to a copy for such purposes. If there is a legit reason getting permission to hang on to a copy is not unheard of.

If there is no legit reason, well I understand very well that we programmers are possessive of our creations. However when we work for someone else there is a tradeoff. We trade the right to our creation for a paycheck, to be immune from the business risk of the company. Whether the stock was up or down I got paid for every hour I worked. Where the company was making money or losing money I got paid for every hour I worked.

Re:relax people it's a technicality (0)

Anonymous Coward | more than 2 years ago | (#39077313)

I thought everything was interstate commerce now. Isn't that how congress justifies interfering with everything.

Re:relax people it's a technicality (1)

Joe U (443617) | more than 2 years ago | (#39077831)

his lawyers convinced an appeals court that coding for a system meant to buy and sell stock across state and international borders wasn't "interstate commerce"

The system itself wasn't being sold, which is what the law protects. Remember, there's usually a somewhat poor real-world analogy (car related, if you're lucky) you can use when dealing with cases like this.

Prosecution flubbed it (4, Interesting)

GlobalEcho (26240) | more than 2 years ago | (#39077177)

If you read TFA looks you find that, in their eagerness to get the maximum news and sentence, the prosecution chose the wrong statute to charge him under. If they had just treated this like any other case of illegally copying an employer's code and not tried to get cute with the "interstate commerce" bit, they would have had a rock-solid conviction.

Hm. (0)

Anonymous Coward | more than 2 years ago | (#39077481)

You know, when I sue someone for murder, I don't sue the knife, I sue the dude holding the knife.

fros7 pi5t (-1)

Anonymous Coward | more than 2 years ago | (#39077617)

and shoutinG that revel in our gay These early

Since when has stealing been illegal on Wall St? (2)

elrous0 (869638) | more than 2 years ago | (#39077637)

If they convicted everyone there who was a thief, who would be left?

Re:Since when has stealing been illegal on Wall St (0)

Anonymous Coward | more than 2 years ago | (#39078085)

That old hobo, Bob, who asks for change at the bear and bull statue, never actually stole anything.

Everybody else would be in prison.

It just goes to show you (2)

eternaldoctorwho (2563923) | more than 2 years ago | (#39077775)

that Goldman sachs.

not a "recommendation" (2)

MarkvW (1037596) | more than 2 years ago | (#39079091)

The Second Circuit is TELLING, not asking, the lower court to enter a judgment of acquittal. The feds only hope is a successful supreme court apppeal.

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