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"If ya ain't cheatin', ya ain't tryin'."

Apparently, Goldman Sachs has NOT been booted out from doing computerized quant trades at NYSE. Bad NYSE reporting.

-- GS had been making $100,000,000 a day with computerized trades.

-- This diary outlines one spectacular and illegal way to succeed at that business.

Indeed, GS was "cornering the market" as cited from Zero Hedge by bobswern at dkos.

New York City's finance sector dropped 25,600 jobs in April. May be that GS charlie-hoteled every last one of them.

Then, Sergey Aleynikov got himself arrested. NYTimes says its about "secret sauce" Goldman Sachs quant math. We'll consider Mr. Aleynikov's STORM patent with distributed processing agents. Recalls Triple Hop's text indexing tools. Nothing to do with quant math.

The big ticket, the magic wand for a rogue quant shop is technology to grab off FIX PROTOCOL, OCX, or SWIFT messages that precede every transaction_commit at the Exchanges.

Grabbing information is way hotter for conquering Wall Street than owning a crystal ball. MoreBTF :::

AN APOLOGY TO LAY READERS:

This diary is written to be useful for the security teams at the Exchanges and sell-side brokerages.

Translating this material to jargon-free English is far beyond my abilities. Zero Hedge and the referenced diaries give the basics.

Again, you have my apology in advance.

-------------------------------------------------

Want to read the future ?

From DKOSer Ezekial:

...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.

Two things come out of this:

  1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...

 (2. ... is way off point....)

SUMMARY:

Goldman Sachs may just possibly have used security access codes and built a system to acquire trading information PRIOR to transaction_commit time points at NYSE.

The profitability of this split-second information advantage would have been and could have been extraordinary. Observed yielding profits at $100,000,000 a day.

[summary to address complaints with respect to complexity.]

GS has special access inside the system from its status assisting the Working Group on Financial Markets (colloquially the Plunge Protection Team) created by Presidential Order two decades ago. GC also acts as Special Liquidity Provider for NYSE.

With 60% dominance of NYSE program trading, what's good for Goldman defines what shows as overall market performance.

Control of to network and server access codes is unclear. A number of shops run their network and job control operations with UNIX shell scripts. Bloomberg and Merrill are typical. Problem with shell scripts is that they get run with superuser credentials -- soon as you have 1000 scripts, everybody gets access to the passwords.

It doesn't have to be the "root" user. Any networking user with access to TCP can grab values from memory.

Here is the most complex system that Mr. Aleynikov worked on.

Strategic Telecom Optimized Routing Machine

Inventors:  Sergey Aleynikov
Agents:  OBLON, SPIVAK, MCCLELLAND MAIER & NEUSTADT, P.C.
Assignees:  IDT Corporation
Origin: ALEXANDRIA, VA US
IPC8 Class: AH04M700FI
USPC Class: 37922101

The patent application is a public document:

BACKGROUND OF THE INVENTION

Field of the Invention

[0001]The routing of calls through telephone networks to achieve least cost or best cost routing can be a complicated process. In the past, call routes through switches and carriers were decided through a combination of Microsoft Excel spreadsheets using a manual process. This process entailed dozens of linked Microsoft Excel spreadsheets. These spreadsheets were difficult to expand, and easily reached maximum capacity.

[0002]Additionally, these spreadsheets required the manual input of data across spreadsheets. Once all the commercial information was inputted into the spreadsheets, an additional three to four hours were required before the updates would actually hit the switches and affect routing. This delay in routing updates resulted in ineffective cost routing over the network and poor selection of carriers.

SUMMARY OF THE INVENTION

[0003]The strategic telecom optimized routing machine (STORM) suite of applications of the present invention provides computer-based call routing and management capabilities that are not constrained by limitations imposed by switch-based routing. Through the present invention, it is possible to achieve an improved profitability margin for each call, and quicker responses to carrier outages. STORM routing also more effectively achieves call routing with economic efficiency that satisfies individual customers' business needs.

[0004]To overcome the problem of switches being "unaware of each other," changes to routing options are no longer made offline and loaded onto the switches. Rather, the routing function is removed from the switches and placed on a server. This overcomes limitations in switches, which previously prevented the telecommunications provider from maximizing all possible carrier supplied rates.

[0005]Additionally, through the present invention, it is possible to route incoming calls on paths that are tailored to the individual customers' needs. It is also possible to change routing parameters based on the time of day (e.g., multiple peak and off-peak time periods). Through the present invention routing alterations may hit switches at desired intervals (e.g., instantly or after 15 minutes, etc.), which enables improved network performance.

Nice telecom system control. Uses servers -- or cycles at the switches -- to monitor packets in real time. One big trick is getting this software to run on the distributed assets of the system -- which in turn depends on getting the passwords to the switches, which can be changed daily.

If you've got a way to get the passwords, the implementation software for this STORM system is perfect for installing programs to capture text streams.

Back a few years ago, Oracle bought a company Triple Hop -- formerly of South Tower WTC -- because they had worked out a solution to this implementation problem. They did a first-rate job. Triple Hop used its access and remote programs to build text indexes at the target systems. It is more efficient to build-and-move these text indexes than to copy enormous volumes of text to a central server and build the indexes in one place.

Front-end messaging for NYSE is done with small text messages. FIX Protocol messages are tiny things -- less than a k. Encryption is optional or nonexistent or easily enough made transparent. NYSE has any and all access codes involved.

HERE is full text for the Aleynikov patent application.

A quick look at IDT Corporation:

This assignee, originally "International Discount Telecommunications," shows them as Integrated Technology Corporation of Newark, New Jersey, with tag "IDT" on NYSE. IDT does phone cards and international call centers.

IDT lost $43,000,000 on operations in 2007. Stock price has fallen from $50 to $1.75 over the last 5 years. Desperation setting in at IDT ? Stock price hit a bottom at $ 0.72 last December 15th.

There has been no interruption to financing, no pause to this IDT buying assets. IDT bought Zedge -- a Norwegian comic book publisher serving 11,000,000 online nerd-heads -- and 75% of American Shale Oil Corporation. Funny mix.

The offices and call centers spread out worldwide: London, England; Guadalajara, Mexico; Jerusalem, Israel; and San Juan, Puerto Rico. Nothing in Russia.

In any case, IDT is not in the business of managing large telecom networks, which belong to huge companies. The telecoms generally do not seek outside help and never run someone else's non-vendor distributed software on their gear. (Voids warranties.) IDT sells phone cards. The how and why and what of this Mr. Aleynikov hooking up with IDT Corporation remains a mystery.

FIX Protocol, OCX, SWIFT -- messaging, transaction commit_timing and split-second vulnerability.

K.I.S.S.

The flow to carry out financial transactions can be complex at the detail level. But if we make logical blocks for the different stages, overall patterns have a steady flow.

The Financial Information eXchange ("FIX") Protocol is a series of specifications for the electronic communication of trade-related messages. ISO 15022. FIX is used for NYSE stocks and for the options markets. FIX can also be used to support fixed-income trading activities for the following fixed income asset classes:

   * US Treasury Bonds
   * US Corporate Bonds
   * Municipal Securities
   * Agency Securities
   * To-Be-Announced (TBA) Mortgage Backed Securities
   * Euro Sovereign Bonds
   * Euro Corporate Bonds
   * US and European Commercial Paper

HERE is the page for the bond markets at FIX Protocol dot org.

Flow can go like this:

-- IoI: Indication of Interest to negotiate a deal. Similar to Trade Adverts. States the asset (by CUSIP number code) up for bid/offer

-- Quote Request

-- Quote

-- Quote Response

-- Execution Report

An IoI can also be published with an Executable tag value. Trades are executed more or less immediately.

All you need are the Execution Reports. CUSIPS, quantities, and prices will do it.

These trade events happens out in the front-end, prior to communication of the data to the Exchange. Messages go through the internet, local networks and sit on middleware application servers, as well as being stored on databases. FIX and SWIFT are compatible -- the aim of these systems is to make trading efficient, moving to support Straight Through Processing (STP.)

Access to FIX, OCX or SWIFT messages prior to transaction_commit at the Exchanges would give a player an advantage parallel to seeing an opponent's cards in a game of poker.

We had always worried about information leakage, as a prospective/in-process deal could be anticipated with a play in the related options market. A Retail Working Group had this up for discussion, but that Group is now inactive. The technical Encryption Working Group was replaced by a Global Technical Committee's Information Security Subcommittee. Goldman Sachs participates through two individuals in UK: James Bywater and Richard Van Horn. There is no interface to the U.S. National Threat Assessment Center.

If kossacks are interested in the details, then stocks, options and bonds share overall flow patterns at the simplest aggregation. The standard usage models are described for an Initiator and a Respondent. The examples at the FIX Protocol dot org site give you most of what you need.

These systems are used at millions of companies.

"So... You Guys Want Keys To The Mint ?"

It takes a damn fool to steal money. That leads to vacation destinations such as Sing Sing and Folsom. Smart crooks steal either information, itself, or they steal whole books of business.

When Ronald Reagan said that "Government is the problem," he had no idea how totally wrong he was with respect to federal oversight to keep criminals' hands off the capital markets.

Reagan's disciples failed to appreciate what Straight Through Processing efforts were going to bring along -- in terms of opportunities to use computer trading to exploit near-instantaneous advantages in information access.

What is a quant ? What do they do that makes earlier access to trade information decisive, profitable beyond dreams ?

The market is a system of liquidity providers, who cushion open market trading mechanisms. One fact, since STP tools arrived, is the fact that the vast majority of transactions in today's market are in fact high frequency, small block trades that cross between the quant funds and program traders.

Retail and customer driven buy/sell orders are the leasser part of NYSE markets. Zero Hedge calculated that the S&P was up-ticked by 60 points from this pattern -- as liquidity inflow forced artificially high stock prices.

The key players operate in this is market predator/prey stratum, top rung of multiple split-second traders, from which the big players are Renaissance Technologies Medallion, Goldman Sachs and Global Electronic Trading (GETCO.)

"Anyone who is doing anything sensible right now is either losing money or is out of the market entirely."

That's Durden at Zero Hedge again, doing on-point quoting from a Wall Street trader.

You can't play where the game is rigged. Bye-bye those 25,600 jobs a month... and more to come.

(In passing: how's Hank Paulson doing ?)

What you see for descriptions from a quant is something like this from Global Electronic Trading:

What’s good for the market is good for GETCO

GETCO’s strategy is to align our business plan with what is best for the marketplace. We earn our revenues by providing enhanced liquidity and efficiency to electronic financial markets, which in turn results in lower costs for market participants (e.g. mutual funds, pension funds, and individual investors).

In addition to actively trading, we partner with many exchanges and their regulators to increase transparency throughout the industry and to create more efficient means for the transference of financial risk. ...

GETCO succeeds because our associates focus on making our team greater than the sum of its parts. We work to maximize one another’s opportunities to contribute and to ensure the best ideas rise to the top. We live by core values that include cultivating a low-ego environment, practicing mental flexibility, frequently engaging in vigorous debate and treating everyone with respect.

Sure. I'll trust that. Dr. Phil in on Channel 7, too.

Goldman doubled quant market share. Increased profitability of the quant unit so that it was carrying the whole company, couple months back.

Mr. Aleynikov, the charged ??? They want us to think that he was just some doofus, who played with the GS network. A $400,000 a year version of the nerd-spokesperson cell phone guy in television ads. (The bland one who shows up all over the damn place with 5-bar signals and his 1,000-employee network support crew.)

Sure. Trust that.

And Governor Palin is always sober, never dropped a diet pill faux-amphetamine in her life....

BTW: Zero Hedge has careful statistical analysis of what is going on. Bottom line is a 6-sigma proof of distortion. The "why" and "how" of the distortion is what goes outside the NY Times-printed claim that GS developed a super-math engine.

http://4.bp.blogspot.com/...

ABTW: Matt Taibbi is another wet-behind-the-ears optimist.

Originally posted to vets74 on Tue Jul 07, 2009 at 02:36 PM PDT.

Poll

Goldman Sachs bumped its computer trading business up to 60% of all NYSE quant trades.

10%123 votes
2%36 votes
2%32 votes
6%76 votes
64%784 votes
12%157 votes

| 1208 votes | Vote | Results

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Comment Preferences

  •  TJ -- get the codes, go smash-and-grab. (8+ / 0-)

    NYSE employees are solid. No way they could have anticipated such an attack.

    Quant shop + Secretary of Treasury 2008 + SLP + PPP + every other damn thing under the sun

    =EQ=

    Temptation.

    Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

    by vets74 on Tue Jul 07, 2009 at 02:23:45 PM PDT

    •  Dude... (1+ / 0-)
      Recommended by:
      RenderQT

      STORM has nothing to do with financial transactions: it has to do with determining best rates for voice terminations.  FAIL.

      [Journalism] is media agnostic. - Kos

      by RichM on Tue Jul 07, 2009 at 02:44:29 PM PDT

      [ Parent ]

      •  That's what I thought. (6+ / 0-)

        But besides that over-reach, there is mounting evidence that GS was reading the buffers of the NYSE before the market executed their actual orders through co-location networking.

        Couple that with the quant platform GS had in place (even mentats use computers these days), and you got a serious temptation to rig markets.

        I guess if we could see the source code of the stolen code, then the market would be transparent. But of course, that is Goldman Sachs's intellectual property.

        2 cents

        •  Is *that* what he was trying to say? Shoulda just (3+ / 0-)
          Recommended by:
          RichM, oldjohnbrown, dotsright

          said so.

        •  STORM (1+ / 0-)
          Recommended by:
          oldjohnbrown

          is a real-time transaction system that uses algorithms to determine best value.

          Its a deal maker.

          Lets posit a convergence between determining best value for a routing of a call and best value for routing a transaction in the financial market.

          If you can detect the transaction between the moment of determination of best value and commitment to that deal, and insert into the stream your own transaction to take advantage of the deal that will occur in the next millisecond, you can make the commission on $100 million worth of transactions every day.

          STORM may be the model.

          Until inauguration day The USA is in the greatest danger it has ever experienced.

          by Deep Dark on Tue Jul 07, 2009 at 04:24:48 PM PDT

          [ Parent ]

          •  STORM had an installation system. (0+ / 0-)

            That installation system is the main value, if GS got tempted to snag pre-commit NYSE trading information.

            The STORM network routing algorithm is irrelevant.

            Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

            by vets74 on Tue Jul 07, 2009 at 04:55:57 PM PDT

            [ Parent ]

          •  Almost but not quite (0+ / 0-)

            Storm wasn't designed to detect a transaction between determination and commitment.  It just looked at a dialed telephone number, determined which carriers could complete calls to that location, compared there respective per minute rates and then handed the call off to the cheapest carrier.  

            Basic telco routing.

            However, since it had to make those decisions while you were waiting for the call to your mom to connect, and it had to so that for thousands of incoming calls per second, the only way to do this was using a highly optimized and distributed system.
            That's what Serge was working on at IDT before he left to go work for GS.  

            Storm wasn't the model, but Serge's experience working on high performance distributed systems and the technologies used to build them would certainly have come in handy when building trading systems for GS.

            •  Call STORM the "platform" (0+ / 0-)

              With this platform GS is able to grab trade data and make trades before the original trade even takes place. Clearly illegal.

              •  No - because it's not. (0+ / 0-)

                Because STORM is an actual platform for routing telephone calls through a telephone network.   It would be pretty hard to do any kind of securities trading with that!

                Here is the problem - people misrepresenting what STORM is and claiming it's this magic piece of software that allows GS to execute trades before they legally should be able to.  

                Well maybe GS has been able to figure out how to do just that, but they aren't using STORM to do it.  So, if that's your (or the diarists) theory, you are going to have to back it up with some evidence or at least some well thought out logic.  Pointing to a patent application for a telephony routing system that was filed 3 years ago by a telephony company that Serge used to work for is NOT evidence.

                You might as well just say that GS has a pink unicorn that can see into the future and that he makes all their trades for them.

      •  INSTALLING the STORM software... (0+ / 0-)

        is what matches up with raiding the buffers.

        Read the diary.

        Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

        by vets74 on Tue Jul 07, 2009 at 03:03:05 PM PDT

        [ Parent ]

        •  Don't confuse system design with equipment (2+ / 0-)
          Recommended by:
          RichM, vets74

          implementation.

          He have developed a duplicate relevancy matrix (switches being "unaware of each other) by placing the control on the server (software based) instead of using switches themselves (flashed on the board).

          This is like going from a hardware modem to a software modem.

          •  The one he built had to do it. (0+ / 0-)

            The patent app refers to an actual physical system.

            Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

            by vets74 on Tue Jul 07, 2009 at 03:56:25 PM PDT

            [ Parent ]

            •  All patents refer to a physical system (1+ / 0-)
              Recommended by:
              oldjohnbrown

              Software per se has never been patentable, but you can patent a device that does exactly what the software does, and the patent protection then applies to a software implementation.  One also writes patent-ese in a deliberately vague and impenetrable manner in order to appear more novel and also achieve broader coverage.

              It's just another ridiculous feature of the patently ridiculous patent system we have nowadays.
               

              •  Patents (0+ / 0-)

                Not to mention, when the Lawyers get done creating the patent application, it looks nothing like what the engineer has built or ever imagined.  They will tweak everything to make it as narrow as possible in order to get approval for the patent, while at the same time making it as broad as possible in order to maximize the intellectual property that is covered by the patent.

    •  STORM (0+ / 0-)

      I'm probably going to regret delurking here, but here goes...

      I think vets74 might have to active an imagination on this one.  He's trying to draw linkages and inferences to show that there is something more here than meets the eye.  The truth however is that there is much less.

      I know Serge.  I worked with him for several years at IDT.  I even did some tangential work on the Storm system that's described in the patent app.

      Let me clear up some false statements that have been put out there.

      1. IDT is not some kind of front for mysterious conspirators.  It's just a lowly telecom company that specializes in low end calling cards.   The founder and majority owner of the company is Howard Jonas who also founded Net2Phone, one of the original IP telephony companies (like Vonage) and then sold it to AT&T for a little more than a billion dollars during the height of the dot com bubble.  He then bought it back from AT&T a few years later for pennies on the dollar after they couldn't figure out how to make money on it.  Turns out IDT couldn't figure it out either and we've been burning through that billion dollars ever since.
      1. Yes, IDT is a telecom, and actually has telco switches.  At it's peak it was about a half dozen Nortel DMS's with a few smaller IP based switches thrown in the mix and lots of voice response servers that handled the debit card traffic.
      1. Storm was not some system for sniffing traffic off a network.  Every telco switch needs to know how to route the call you are trying to make and does this based on the phone number you dial.  The switch uses that number to pick outbound carriers from a list that is usually ordered based on the cost and quality that those carriers provide.  The problem in a multi switch network is that each switch only knows about what carriers are directly connected to it.  It's unaware that the cheapest carrier with the best quality may actually be on another switch.  Storm was a system that was going to centrally route traffic for all the switches.  That way a call coming into switch A for a telno in Ecuador could be shunted over to switch B where it could pick up the cheapest carrier that would terminate that call.
      1. IDT is in no way connected to GS.  That should be fairly obvious to anyone who has seen their shares of IDT slide from $50 to $1.50 in the last few years.   Serge left IDT 2 years ago in the middle of the Storm project to work for GS.  Why did he leave?  Well IDT has gone through several rounds of layoffs in the last few years and the $400K/yr that Goldman was paying him was probably quite a bit higher than what he was probably earning at a third rate telecom.  Why did GS hire him?  Probably because he knew how to program in Erlang, a somewhat esoteric programming language that is often used in high performance distributed environments.  He leveraged the skills and experiences that he attained while working on Storm and used it to land a better paying job.  
  •  I have no idea (7+ / 0-)

    what this diary is about.

    "The military industrial complex not only controls our government, lock, stock and barrel, but they control our culture." - Mike Gravel

    by Wilberforce on Tue Jul 07, 2009 at 02:41:10 PM PDT

    •  I think he's saying GS used insider access to (6+ / 0-)

      execute trades based on (fraction-of-a-second) advanced knowledge of others' future trades.  But you are right, this diary is indecipherable.

      •  Maybe... (2+ / 0-)
        Recommended by:
        Wilberforce, RenderQT

        But the data he is using to back up this claim is a non-sequitor.

        [Journalism] is media agnostic. - Kos

        by RichM on Tue Jul 07, 2009 at 02:45:28 PM PDT

        [ Parent ]

        •  Put enough non-sequitors together, (2+ / 0-)
          Recommended by:
          RichM, Jim W

          maybe you can make an improbability drive!

        •  Zero Hedge and bobswern at dkos.... (1+ / 0-)
          Recommended by:
          bobswern

          are there by reference.

          Both have some of the basics. But they're not written for non-professional.

          I'm not here to entertain you. (Pink.)

          Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

          by vets74 on Tue Jul 07, 2009 at 03:27:12 PM PDT

          [ Parent ]

          •  Like you said.... (1+ / 0-)
            Recommended by:
            vets74

            ...you're not apologizing to the laypeople 'round here.

            Oh, and for the record...I own a small SaaS business in the financial services sector. Changed everything over from old Sparcs to Linux a couple of years ago, once they started getting their security asses in gear. Now the Sparcs and the Netras are oversized paperweights taking up space in a closet in my office.

            But...I also have the benefit of concurrently coming from the political/advertising/media/p.r. world. Somehow, back in the early- to mid-90's that morphed into a focus on Internet development and marketing for tech firms, which then morphed into the same for financial services.

            Have all of one course's worth of experience in programming (Fortran...kind of like a basic knowledge of Sumerian dialects, as it were), when I was on my way to a B.A. degree in college.

            Also, some extensive experience in integrations with telephony systems, and a well-found intimidation of--and respect for--doing research on patents in the field!

            And, the rest is history...but definitely enough for me to get a REAL kick out of this diary!

            I loved it! Had me laughing and alternately had my jaw dropping, too...

            "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

            by bobswern on Tue Jul 07, 2009 at 09:06:57 PM PDT

            [ Parent ]

      •  No, I think you've got it nailed (7+ / 0-)

        But why he felt he had to post something

        written to be useful for the security teams at NYSE and other exchanges and approximately 185 sell-side brokerages.

        here, and why he feels unable to translate into jargon free English is the odd part.

        Translation pretty much as you wrote it.  GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters.

        Two things come out of this:

        1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen after it was found out they were deliberately helping clients shred evidence.
        1. NEVER place 'market' orders.  Always set your buy/sell prices.  Market orders are just begging for somebody in the chain to steal money from you.

        Bah. Typoed during acct creation. It's Ezekiel 23:20

        by Ezekial 23 20 on Tue Jul 07, 2009 at 03:33:44 PM PDT

        [ Parent ]

        •  I'm stealing your shit ! (0+ / 0-)

          It'll go up near top of the Body.

          Securing the Exchanges from this rather odd form of attack gets 100% of the priority. DKOS is a suitable sound board.

          Folks who want to learn the systems and law and technology -- that is a ten year project at the least.

          Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

          by vets74 on Tue Jul 07, 2009 at 03:49:20 PM PDT

          [ Parent ]

          •  I'm a ten year vet of IT (3+ / 0-)
            Recommended by:
            oldjohnbrown, wezelboy, vets74

            and I still didn't 100% follow what you said, because it's not my specialty, but I hope somebody in justice finds a way to nail em hard if indeed that's what they were doing.

            Bah. Typoed during acct creation. It's Ezekiel 23:20

            by Ezekial 23 20 on Tue Jul 07, 2009 at 04:13:54 PM PDT

            [ Parent ]

            •  Pray that DHS hammers this at NTAC tomorrow. (3+ / 0-)
              Recommended by:
              oldjohnbrown, wezelboy, Ezekial 23 20

              Secret Service can kick anybody except POTUS in the ass, hard.

              This type of attack -- effectively minting liquidity -- is seen as a form of counterfeiting. That is their original juridiction and reason for existence.

              Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

              by vets74 on Tue Jul 07, 2009 at 04:22:05 PM PDT

              [ Parent ]

            •  many financial companies (4+ / 0-)

              use a middleware software component to pass messages back and forth across their networks in a secure and verifiable way.  The two companies that are used most frequently are tibco and vitria.

              There are lots of intricacies and configurations on how to do this though, and sometimes it comes down to how your system architecture looks.  Are you trying to send messages point to point? Are you trying to construct a message bus so that many systems can participate in the same message flow?

              In the latter case, many companies setup up tibco to do multicast broadcast, so that all endpoints can receive the same message with only one broadcast, and this can span routers and switches.  

              The question then becomes, who has access to systems on the same multicast network, and how sensitive is the information being broadcasted, and (if you're a greedy prick) how could one profit from that information?

              If you answered the last question with 'in innumerable ways' then you'd be right.

              •  That's the crux (2+ / 0-)
                Recommended by:
                wezelboy, vets74

                There's no one source of stock when a large block of shares is trading hands.  A call must go out to the ~185 primary brokers mentioned in the diary, and their systems then respond as appropriate.  I could see a situation where Goldman's system "camps" on blocks of stock with a

                1. "do you have some of this at this price?"
                1. "yeah I got 1000"
                1. Instead of finalizing the quote, wait up to the allowed timeout period
                1. Either finalize the quote if another request has been intercepted, or allow the timeout to elapse and the potential trade to evaporate

                The system surely has built-in latency and timeouts, which were designed years ago for older routers and before fibre optics.  If Goldman did a ground-up internal network with consistently fast components, they'd be able to abuse the latencies and built-in timeouts to sit on stock without actually buying it.

                No on Prop 8::Sometimes I get to hitch a ride on the Democratic Bus--they let me stand on the back bumper.

                by steve04 on Tue Jul 07, 2009 at 06:08:45 PM PDT

                [ Parent ]

                •  Getting other peoples' EXECUTION REPORTS (0+ / 0-)

                  ..is the issue at hand.

                  IoI's and Quote Requests, even Quotes, are not particularly valuable.

                  The ER's or SWIFT messages before commit.

                  Negotiation messages are point-to-point, not broadcast.

                  I could discuss how Bloomberg does it, or several other general services, but that's outside of scope for this Diary.

                  Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

                  by vets74 on Wed Jul 08, 2009 at 05:40:29 AM PDT

                  [ Parent ]

    •  Niether does the diarist... (3+ / 0-)
      Recommended by:
      Wilberforce, thelatinist, RenderQT

      Apparently.

      [Journalism] is media agnostic. - Kos

      by RichM on Tue Jul 07, 2009 at 02:44:46 PM PDT

      [ Parent ]

  •  You're the edscan of financial systems diaries. (0+ / 0-)

    I can dig it.

    Play on, playa.

    "Yao from 20 ... yes!!!!!! Rockets by six. Great stuff. I haven't been this excited by a Chinese person since General Tso." -- Bill Simmons

    by malharden on Tue Jul 07, 2009 at 02:49:28 PM PDT

    •  I note his sig mentions DSM-IV/delusions. (0+ / 0-)

      Might want to reread the portions on paranoia himself.

    •  I thought he was channeling (0+ / 0-)

      William Gibson.

      •  Bite your tongue! (1+ / 0-)
        Recommended by:
        thaddeus74

        Gibson would have pulled all this together in one last mindblowing paragraph.

        •  true dat. (1+ / 0-)
          Recommended by:
          RenderQT

          You're right.  Gibson is friggin amazing.  That's a good way to put it too, because Gibson makes you work hard, but the payoff is awesome.

          let me re-phrase: it reads like an untalented William Gibson impersonator tried his hand at writing about the financial markets.

          •  thaddeaus74 is too lazy to read the... (1+ / 0-)
            Recommended by:
            oldjohnbrown

            Zero Hedge and bobswern articles -- cited for background -- that lay the groundwork.

            Securing the Exchange front end systems is a continuing problem, because outside attacks occur at the sell-sides every day. NTAC and the NYSE security people make strong efforts. Same for FIX Protocol people.

            Securing these front-end systems from internal, connected threats -- damn. And I am not getting into that problem, here.

            One expects this material to be entertaining ???

            Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

            by vets74 on Tue Jul 07, 2009 at 03:34:44 PM PDT

            [ Parent ]

            •  no, I'm not taking issue (0+ / 0-)

              with the main thrust of your argument.  I actually worked for the last 9 years on a trading floor protecting and implementing the very type of systems you are talking about.  I know how big players have attempted to game systems, and I'm quite sure GS had their fingers in all kinds of illegal pies.

              hmm, maybe a bad metaphor there.  We're not talking about Sanford after all ;-)

              I just think you could have taken some more time in developing your diary so people could actually understand it, and I think there are some concepts that you talk about that you are not actually familiar with.

              I also think you make some strange leaps of logic, especially when you start talking about voice packet switching.

              •  I never mention voice packet switching. (0+ / 0-)

                It is irrelevant to these issues.

                Trading floor security is tough enough, btw.

                Best of luck with your efforts.

                Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

                by vets74 on Tue Jul 07, 2009 at 04:07:19 PM PDT

                [ Parent ]

                •  well, you didn't use that term (1+ / 0-)
                  Recommended by:
                  vets74

                  but your comments on Storm are about voice call routing based on packet content.  That has fuck all to do with this.

                  Likewise the stuff about 'bash scripts' also sounds like nonsense.  It may be right, it just rings false to my ear since I've been a Unix admin for 15 years.

                  I don't know the details of GS's infrastructure, but if it is anything similar to the fortune 5 company I worked for, this is much more likely to do with who has access to the tibco integration monitors and who has access to the tibco multicasts networks.

                  But that's just my limited view of things.

                  •  TIBCO has its problems. (1+ / 0-)
                    Recommended by:
                    oldjohnbrown

                    Considering TIBCO weaknesses might well lead to a temptation to use the installation system that goes with Mr. Aleynikov's system.

                    I have not seen TIBCO used for FIX Protocol -- that's what the vendor packages do. TIBCO or MQ or any such could be used, of course.

                    Getting at the TCP buffers at the servers is my preference, but I always liked c and getting in underneath.

                    GS techies would have been able to examine NYSE programs and interface specifications. Open book.

                    All they needed for $100,000,000-a-day temptation was a few account codes. Run scripts for the installations. Open firewall ports for the incoming data. Sit back and GS gets super rich.

                    Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

                    by vets74 on Tue Jul 07, 2009 at 04:38:33 PM PDT

                    [ Parent ]

                    •  Simple, rhetorical question... (3+ / 0-)

                      How many Goldman Sachs IT folks worked for NYSE and/or Tibco, before coming to work for GS? And, vice versa?

                      Don't have to be a rocket scientist here...just having an understanding of the calculating mind is all that's necessary...I mean, after all, this is a political blog, right?

                      (Sick) LOL!

                      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

                      by bobswern on Tue Jul 07, 2009 at 09:19:33 PM PDT

                      [ Parent ]

                    •  Installation System (0+ / 0-)

                      What installation system?   I'll admit I haven't read the entire patent application, but only because it barely resembles the actual system that Serge was trying to build
                      which I have first hand experience with.

                      The installation system that I'm familiar with consisted of manually ftp'ing some Erlang code onto a couple of Linux servers running some High Availability software and then restarting the Erlang run time engine.   It also required configuring a Nortel DMS to point it's SS7 signaling to the same Linux servers so that it could make the routing decisions for it, but I'm really not sure how in the heck that would be of any use to someone on Wall Street.  

                      That is unless the NYSE is run on 30 year old telephone switches made in Canada.

                  •  It's like bonddad mind-melded with edscan (0+ / 0-)

                    Occasionally you get the wackjob who latches onto a third party article that may be 100% the truth, but they hardly ever fail to festoon it with weird, unrelated, incomprehensible embellishments.  Here we have that.  Actually it sort of seems to be the specialty of this diarist.

                  •  Packet content (0+ / 0-)

                    You give Storm too much credit.  It doesn't route based on packet content, just on the call set up parameters, the most basic (and obvious) one being the telephone number that you are attempting to connect to.  It can also take into consideration which codecs might be supported on each end of the call for an IP based call, but not much more than that.  Once the call is cut through, it has no idea what the content of the call is.  

  •  Arrogance (2+ / 0-)
    Recommended by:
    JuliaAnn, vets74

    I don't know about the minutae but I am really glad someone is paying attention to GS including Rolling Stone mag. They,GS,  have cornered power and privilege but they forgot about morality.

    Think Tank. "A place where people are paid to think by the makers of tanks" Naomi Klein.

    by ohcanada on Tue Jul 07, 2009 at 02:57:59 PM PDT

  •  First rule of communication: (1+ / 0-)
    Recommended by:
    vets74

    Make it understandable.

    You've failed at that.

  •  There is increasing evidence out there that GS (3+ / 0-)
    Recommended by:
    maynard, vets74, RenderQT

    is rigging the game in its favor, in particular the Matt Taibi RS article and the ongoing posts at Zero Hedge.  One of the more disturbing actions by GS, pointed out by Durden at Zero Hedge, is their unique client disclaimer in which they are allowed to access all keystrokes and other information of clients using their service.

    •  Yeah, if it winds up being true that GS (2+ / 0-)
      Recommended by:
      vets74, Ezekial 23 20

      is front-running their own clients, it will be the ultimate financial facepalm.

      •  Ezekial hits the nail on the head, above... (1+ / 0-)
        Recommended by:
        jsquared

        ...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters.

        Two things come out of this:

          1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen....

        His 2. is quite true, but off point.

        Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

        by vets74 on Tue Jul 07, 2009 at 04:11:31 PM PDT

        [ Parent ]

  •  Can you draw (1+ / 0-)
    Recommended by:
    vets74

    up and post a flow chart to explain what you're saying?

    The banks have a stranglehold on the political process. Mike Whitney

    by dfarrah on Tue Jul 07, 2009 at 03:18:05 PM PDT

    •  GS dominated the hedge fund market. (0+ / 0-)

      Looks like they swiped information ahead of it getting posted inside NYSE.

      The STORM installation process matches nicely with what GS needed to carry this out.

      $100,000,000 a day profit.

      (We're on the wrong side, if you wanna get rich.)

      Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

      by vets74 on Tue Jul 07, 2009 at 03:22:28 PM PDT

      [ Parent ]

  •  GS will be part of Obama's one term (1+ / 0-)
    Recommended by:
    yellow dog in NJ

    the economy, the ginned-up "stress tests," allowing the banks to pump and dump, GS scandals, etc., etc.

    all of this machaivellian ponzinomics with Biden saying "whoops," is marking the beginning of the end of the Obama era.

    should have allowed a bunch of the zombies to fail and begin to build a new foundation on terra firma.

    instead, it's all just sludge poured on top of other sludge...

    look out below.

  •  OK, having read the comments, I think I have (3+ / 0-)
    Recommended by:
    JuliaAnn, oldjohnbrown, vets74

    some idea what you're talking about now.

    Keep hammering it.

    "The military industrial complex not only controls our government, lock, stock and barrel, but they control our culture." - Mike Gravel

    by Wilberforce on Tue Jul 07, 2009 at 09:30:10 PM PDT

  •  EDI could be explored this way too (1+ / 0-)
    Recommended by:
    oldjohnbrown

    But it would need a massive central system, few players and some very fast computers for the scammer to be able to do it.

    Oh wait...

    Yup, very possible but how on earth the other companies didn't scream their heads off at GS ?

  •  Flash! Karl Denninger reads Daily Kos (2+ / 0-)
    Recommended by:
    oldjohnbrown, soros

    Also his take on this Goldman story.

    Karl Denninger Blog Goldman Sachs

  •  Whistleblowing vital (1+ / 0-)
    Recommended by:
    vets74

    Nice to know there are patriotic Americans who will speak off when people are getting ripped off.
    I couldn't help but notice that federal government sites were hit by DoD attacks recently. Could the more general hacking be a way to cover up past illicit actions, kind of like wiping out the old connection data on routers so as not to leave a trace of the traffic used to sniff data?
    Just how much does our government know? Is it like 9-11 where knowing something bad will happen--foreknowledge--isn't the moral equivalent of participating in it? Or do regulators know about the quant trading and are they just staying quiet?
    Is this scandal anything like the mutual fund fee scam that erupted in 2003? Even if there's a fine, where does it go? What's being done to correct the vulnerabilities and systemic problems--gaps in regulation perhaps?--that led to the crisis, like the credit crash? Too many questions, with answers not easily answered.

  •  Sounds like the wire con (1+ / 0-)
    Recommended by:
    vets74

    A hundred years later and someone is still running the the wire con, and not just in movies.

    -- "How can we defend free speech if people go around saying what they like?" -- Edgar Pangborn, The Company of Glory

    by EddieUK on Thu Jul 09, 2009 at 02:16:53 PM PDT

  •  actually they did this con in the Grifters (1+ / 0-)
    Recommended by:
    vets74

    Annette Benning's character was working a long con with another guy - this was their con.  They would tell Texas Oil Tycoons that they had a room of supercomputers that would pull information from around the trading world into their machines a split second before the trades executed then based on a set system of values, the computer would execute a trade before the initial trade went off.  Also like getting the Frozen OJ Concentrates Report ahead of time in Trading Places.  They knew what was going to happen before it happened.  They basically used a time machine to make money - they go back in time, in real time, to see what someone did a second ago, then placed a sure thing bet based on that information.

    It's like putting $100 on the Super Bowl a split second before the game starts when you know the final score will be (Team A) 45 - (Team B) 7.

    Or at least that's what I got out of this...

    •  Probably not that straightfoward (0+ / 0-)

      My guess is that these HF systems do not exactly know the outcome before placing the bet.  Rather than "sneaking a peek" and then front running trades.  I would imagine the systems generate large blocks of buy and sell offers in an attempt to "probe" the market.  Based on what happens to those probe trades, the system then makes a calculated guess as to which direction the market is going to take during the next few seconds and then tries to make trades to capitalize on that guess.

      Another possibility is that by putting in buy or sell offers they can actually drive market behavior, something that the hedge funds have done for years and years.  Only companies like GS would be doing it on a massive scale using smaller blocks of trades at a blindingly fast rate.   Hedge funds did it to try to generate big price swings over the course of a few hours or days.   The HF traders are trying to create miniscule movements over the course of a few seconds or minutes and then making up for the smaller margins with higher volumes.

      Of course they could also be looking for correlations between price movements.  For example, if the price of stock X always seems to follow the price of stock Y because of automated trading systems, but due to the current speed of trading systems there is a lag of a few seconds between the 2 price movements, you could in theory design a system that buys and sells Y based on the movements of X.  All you would need is a trading system that can monitor and execute the trade quicker than the other guys trading systems can.

    •  Bingo. (0+ / 0-)

      While the other guys are still out trying to find the snipers' white van.....

      Angry White Males + DSM IV Personality Disorder delusionals + sane Pro-Lifers =EQ= The Base

      by vets74 on Fri Jul 10, 2009 at 02:15:45 PM PDT

      [ Parent ]

  •  vets74, you are to be commended (1+ / 0-)
    Recommended by:
    h bridges

    on this excellent diary.  Goldman Sachs must be taken down.  Dirty rotten bastards.

    If the people lead, the leaders will follow.

    by Mz Kleen on Sat Jul 11, 2009 at 10:54:12 AM PDT

  •  holy fucking christ (1+ / 0-)
    Recommended by:
    newyorknewyork

    Thank goodness this diary has gotten visibility here via another recommended one.

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