Everybody loves the story of Sergey Aleynikov, the former Goldman Sachs programmer accused of stealing proprietary stock trading software from his employer. Bloomberg's reporting is the most thorough. The Wall Street Journal's treatment is here. The New York Times, here.
But a guest post at Zero Hedge by Joe Saluzzi skips past the juicy details and goes to a more substantive point. Who wins and who loses from high speed automated stock trading?
The proprietary code lets the firm do "sophisticated, high-speed and high-volume trades on various stock and commodities markets," prosecutors said in court papers. The trades generate "many millions of dollars" each year.
Markets are a zero sum game -- somebody wins and somebody loses. Where do you think these "many millions of dollars" are coming from? They are coming from you -- the average retail investor and the large institutional investor. These programs are taking advantage of real order flow and are siphoning off small profits throughout the day that belong in the pockets of the retail investor and the traditional money manager.
I wonder how much the programs are taking advantage of people, and how much they are simply taking advantage of other programs. In the war to grab a nanosecond's worth of advantage on the New York Stock Exchange or any other trading venue, it's the best code that wins. But Saluzzi's point makes intuitive sense on at least one level: Regular old humans just can't compete.