http://market-ticker.org/archives/1192-FLASH-Goldman-Code-Theft-BOMBSHELL.html
Wednesday, July 8. 2009
Posted by Karl Denninger in Regulatory at 15:03
**FLASH** Goldman Code Theft BOMBSHELL?
Something really ugly popped up on Daily Kos yesterday late in the
afternoon.....
...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....)
God help Goldman if this is true and the government goes after
them. This would constitute massive unlawful activity.
Indeed, the allegation is that Goldman alone was given this
access!
God help our capital markets if this is true and is ignored by our
government and regulatory agencies, or generates nothing more than a
"handslap." Nobody in their right mind would ever trade
on our markets again if this occurred and does not result in severe
criminal and civil penalties.
There apparently is reason to believe that Sergey might have been
involved in exactly this sort of coding implementation.
Specifically, look at the patent claims cited on DailyKos; his expertise
was in fact in this general area of knowledge in the telecommunications
world......
This is precisely the sort of thing that a Unix machine, sitting on a
network cable where it can "see" traffic potentially not
intended for it, could have an interface put into what is called
"promiscuous mode" and SILENTLY sniff that traffic!
ASSUMING THE TRAFFIC IS PASSING BY THE MACHINE ON THE WIRE THIS IS
TRIVIALLY EASY FOR ANY NETWORK PROGRAMMER OF REASONABLE SKILL TO
DO. IF THAT TRAFFIC IS EITHER UNENCRYPTED OR IT IS EASY TO BREAK
THE ENCRYPTION.....
Folks, I have no way to know what the code in question does, but if
there's anything to this - anything at all - there is a major, as in
biggest scam of the century - scandal here - something much, much bigger
than Madoff or Stanford.
What would this mean, if it was all to prove up?
It would mean that Goldman was able to "see" transaction order
flow - bid, offer, and execute messages - before they were committed in
the transaction stream. Such a "SNIFF" would be
COMPLETELY UNDETECTABLE by the sender or recipient of the
message.
The implication of this would be that they would be able to front-run any
transaction where the data was visible to them, thereby effectively
"stealing pennies" from each transaction they were able to
front-run.
Again: I have absolutely nothing on the content of the allegedly-stolen
code nor can I validate the claim made that Goldman had "special
network access." Nothing. All I have to go on with
regards to "market manipulation" (which such a program would
be, writ large!) is the statement of the US Attorney that I cited in my
earlier Ticker.
This may be nothing more than a crazy conspiracy theory put out by
someone at Daily Kos. But consider the following:
The last few days the the market has traded
"organically." I and many other market participants have
noted that prior to the week before July 4th the market had been acting
"very odd" - normal correlations between interest rate, foreign
exchange the the stock markets had been on "tilt" for the
previous couple of months, with the amount of "tiltage"
increasing dramatically in the last three or four weeks. In fact,
many of my usual indicators that I use for daytrading had become
completely useless. Suddenly, just before the July 4the weekend,
everything started correlating normally again. I have no
explanation for this "light-switch" change but it aligned
almost exactly with the day the NYSE had "computer problems"
and extended trading by 15 minutes. Was there a configuration
change made to their networking infrastructure, one asks?
Zerohedge's information, if you believe it, seems to point toward some
sort of distortion. The cite above claims statistically "as
likely as an asteroid hitting earth it is not true" proof of
distortion in the market. I have not analyzed the data to
independently validate that conclusion, but even if the odds of these
"effects" in the market being random chance are only as good as
getting hit by a tornado this afternoon......
Every market participant deserves answers on this point.
Specifically to the NYSE and all other markets where colocation
connections are made and allowed:
1.Was it possible for message traffic to be "seen" by computers
on your network and colocated into your infrastructure by other than the
originator and recipient? That is, was it physically possible for
anyone to "sniff" messages to and from other market
participants.
2.If it was possible, is it no longer possible, and if so, when was that
change made?
I believe the SEC and FBI must direct a subpoena at all market exchanges
for an under-oath answer to question #1. If the answer to that
question is "yes" then every market participant who had or has
equipment colocated on the NYSE infrastructure must be immediately served
with a subpoena for a true and complete copy of all software operating on
every machine connected to said infrastructure for immediate forensic
investigation to ascertain if any participants were indeed
"sniffing" traffic and front-running orders.
The charge made on the pages of Daily Kos is incredibly serious. If
this happened it is a case of literal robbery of every market participant
for the entire duration of the time that the code in question was
executing on the network, with losses to market participants potentially
running into the hundreds of billions of dollars.
Market participants deserve an answer to these questions.
----------------------------------------------------------------------------------------------------
James M.
Atkinson
Phone: (978) 546-3803
Granite Island
Group
Fax: (978) 546-9467
127 Eastern Avenue
#291
Web:
http://www.tscm.com/
Gloucester, MA
01931-8008
E-mail:
mailto:jm..._at_tscm.com
http://www.linkedin.com/in/jamesmatkinson
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No enterprise is more likely to succeed than one concealed from the
enemy until it is ripe for execution. - Machiavelli, The Prince,
1521
Received on Sat Mar 02 2024 - 00:57:21 CST