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 What does the Justice Department's arrest of former Goldman Sachs Group Inc. (NYSE:GS) employee and ballroom dancer
Sergey Aleynikov mean for the bank's future?Justice is charging Aleynikov with stealing computer codes for the firm's high-speed trading platform. Reuters' Matthew Goldstein writes: The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades. The criminal case has the potential to shed a light on the inner
workings of an important profit center for Goldman and other Wall
Street firms. The federal charges also raise serious questions about
the safeguards Wall Street firms deploy to protect their proprietary
trading systems. Last week Zero Hedge pointed out that the "NYSE Program Trading report was very odd," as Goldman Sachs went from No. 1 to NA. Zero Hedge commented that Aleynikov "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." Zero Hedge and Goldstein managed to find out that the NYSE had a program trading report error: Goldman did in fact not only perform its usual NYSE SLP domination, but also reported of this, as it does every week: "According to the data Goldman Sachs submitted, we are certain we were among theAnd guess who is taking the blame: our old friend Ray Pellecchia over at the NYSE: "Due to an error on our part, the program trading report needs to be revised and we will have a revised list out later this week. It was a system error on our part." MarketBeat explains why this crime caused a ruckus in the blogosphere: Financial bloggers seem especially intrigued by the fact that Aleynikov's arrest follows the disappearance of Goldman from the NYSE's weekly tally of program trading, where Goldman has usually perched at the top. ... And the NYSE seems to concur, saying that the program trading report needs to be revised because of an error on the exchange's part. But there could be bigger implications now that the code has been potentially leaked, as The Market Ticker explains: "The bad news for Goldman though is that if this code is now in the hands of who knows how many other people, what sort of fun could ensue by knowing how Goldman is analyzing the markets?" A federal magistrate set bail at $750,000 for the former Goldman
Sachs computer programmer (and there is a question of whether or not Aleynikov is guilty of prior IP violation). 24/7 Wall Street explains that it may only be a matter of time before other Wall Street firms could also be in danger of having their trading codes leaked:
This robber was caught, but other Wall Street firms may not be so lucky. The trading codes from the largest banks are almost certainly worth a great deal to traders, not just in the U.S., but all over the world. It is a product that could certainly be sold to trading interests in Asia and Europe. Wall Street turns out to be like any other industry having trouble protecting software-based assets. Hackers are so talented that even code with the best security is at risk. If one of the theft attempts works, day traders could be using the most sophisticated trading software in the world. It does certainly raise questions of corporate security, especially now that a lot of firms have been laying off employees as they restructure. As InformationWeek outlines, new communication channels "make it ridiculously easy for employees to lose corporate data." Whether or not the breech will destroy Goldman is another thing. It's doubtful because Goldman will be playing cleanup with its system, and most likely Wall Street firms will want to tighten security to avoid any similar crimes. What do you think? - Maria Woehr
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