The merits of high frequency trading has been debated in recent weeks. Some mentioned it in connection with the so-called “flash crash.” Others think that it may give some traders an unfair advantage and requires correction.

A less discussed aspect of high frequency trading is the secrecy of the computer code that drives it. Last Friday, a Manhattan jury considered the issue and found a former Goldman Sachs computer programmer guilty in connection with the theft of the computer code which drives these platforms. U.S. v. Aleynikov (S.D.N.Y.). In that case defendant, Sergey Aleynikov was found guilty of one count of theft of trade secrets and one count of transportation of stolen property.

According to the court papers, Mr. Aleynikov was employed by Goldman from May 2007 through June 2009. Goldman has been improving and developing its high frequency trading system since 1999 when it first acquired the system in the acquisition of Hull Trading Company. Since that time, Goldman has continued to modify and improve the system. As part of its evolution, the firm took significant steps to protect the secrecy of the system.

Mr. Aleynikov was responsible during his tenure with the firm for developing computer programs supporting Goldman’s high-frequency trading on various commodities and equities markets. In April 2009, Mr. Aleynikov resigned from the firm to accept a position with Chicago-based Teza Technologies. He was hired to develop a high frequency trading platform for Teza.

Prior to his departure from Goldman, Mr. Aleynikov transferred substantial portions of the firm’s proprietary computer code for its high frequency trading platform to an outside computer server in Germany. The files were encrypted. After the transfer, he took steps to conceal the fact that he had transferred the files. This was not the first time Mr. Aleynikov took proprietary computer information from Goldman. During his employment he transferred thousands of computer code files.

Mr. Aleynikov is the second person conviction in recent weeks for stealing high frequency computer code. In November, another jury in Manhattan convicted Samarth Agrawal of the theft of trade secrets and the interstate transportation of stolen property from Societe Generale (here). Indeed, Mr. Agrawal seems to have been something of a trailblazer for Mr. Aleynikov. In the earlier case, the former SocGen trader stole the high frequency trading code to build a platform for a new employer – just as the jury last week concluded Mr. Aleynikov did. While the profits from these trading systems are significant – and knowledge of how to build them seems to help in the job market – perhaps two prosecutions and two convictions in as many months will help protect the secrecy of the systems by warding off would-be job seekers.

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