Code Theft Fallout

At the time, Goldman Sachs warned that if this code had fallen into the wrong hands, it could have been used to manipulate markets, leading many to wonder why the bank would have code like this in the first place. Then when Goldman enjoyed a staggering return to profits in the last quarter-46 days of profits over $100 million-it led many more to wonder if indeed there was some kind of mischief afoot.

There ensued a New York Times investigative journey into the world of high-frequency trading, hitherto unknown to most of the world-as well as to many newspaper reporters. Whether you work in financial technology or simply cover it from the sidelines like we do, it is easy to forget that most people's idea of Wall Street is stuck in 1987. They imagine rowdy traders in a sweaty, sunken pit, shouting and waving their arms to make trades. Even for those who know most trading is electronic these days, it still blows their minds trying to imagine trades being executed in less than a millisecond.

In the rush to shed light on the topic, there has been a lot of confusion-and perhaps misinformation-about the pros and cons of high-frequency trading. Many struggle to discern between high-frequency trading and the practice of allowing flash orders, which is now being investigated by the US Securities and Exchange Commission (SEC). Furthering the Waters Debate series launched in April, Waters asked a few industry players and commentators to tell us what they thought about the whole hullabaloo. (See page 38.)

Another sensitive issue the Goldman code theft raised was IT security. Waters European reporter John Beck looks into how firms can lock down their trading floors and prevent this kind of code theft from happening. The answer is a little worrying-they can't. (See page 10.)

With all this going on, and following on from the controversy over compensation earlier this year, it could be said that Goldman Sachs and other investment banks have succeeded Bernie Madoff as everybody's favorite villains. But they are not all bad. At this time of year, when people-if they are lucky-are taking a bit of well-deserved time off, we like to reflect on some of the ways in which financial services firms give back to society. (See our cover story on page 14.)

Waters hopes you have managed to recharge your batteries, ready for the fall. There is a recovery to arrange.

News Editor Emily Fraser