Goldman Sach’s hand caught in piggy bank.

They admit their hand was in the piggy bank, but say they were just feeling the money, not stealing it.Their trading software it turns out, is running inside the computers that do the trades, and sees other people’s trades before they are made.

This makes it possible for them to “front run” trades.

“Front running” works like this:

Bob offers one million units of a security for one dollar each, and has been offering for some time.  Carol asks for three million units of the same security at ninety cents each, and has been asking for some time.  After a while, Carol blinks, and agrees to buy Bob’s securities at one dollar.  But one millisecond before the trade goes through, Goldman and Sach buy Bob’s securities and promptly offer them for sail at one dollar ten – for the fact that Carol blinked first indicates the price is likely to rise.

Proprietary secret software should not be in trading computers.  Any software in those computers should be subject to scrutiny by all major traders.  Any secret software in trading computers is compelling evidence of wrongdoing.

Why is all this @#$% floating to the surface now? Because suddenly, people are looking for rats.

Leave a Reply