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September 9, 2009

Code Thefts Don't Worry Brokerages

By James Ramage

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  • Code Thefts Don't Worry Brokerages
  • Page 2

Two prominent cases of code theft involving major institutions and their former employees have the industry's attention, but not their concern.

James Doherty, Credit Suisse

In the first, UBS in March filed suit against three former employees in its algorithmic group-Jatin Suryawanshi, Partha Sarkar and Sanjay Girdhar-when they moved to Jefferies & Co. earlier this year. In the firm's complaint, UBS charged the three with misappropriation of trade secrets, breach of contract, breach of fiduciary duty, unfair competition and other wrongdoing.

In the other case, the U.S. government in July charged a former Goldman Sachs computer programmer with theft of trade secrets and transportation of stolen property in foreign commerce. The programmer, Sergey Aleynikov, allegedly copied 32 megabytes of Goldman's proprietary system code and sent it to a server in Germany.

But electronic trading execs say that, despite these cases, they're not frightened by the possibility of employees walking off with trade secret source code. To begin with, they're confident of the security and surveillance they have in place.

Second, they say their algorithms are often woven tightly into a proprietary infrastructure. Therefore, algorithmic coding's utility diminishes significantly once it's separated from that infrastructure. This is the situation at Credit Suisse, said James Doherty, director and head of product development for Advanced Execution Services.

"For us, algorithmic code has limited usage outside of its place within our platform," Doherty said. "Coding has to work within an infrastructure-how we connect to the markets, to the market data, to the analytics and so on. It's tailored to a firm's platform."

This apparently isn't how UBS and Goldman Sachs see it.

The UBS complaint alleged that Sarkar copied 25,000 lines of physical source code from UBS-roughly equal to one algorithm, or sections of several, sources said. Lance Gotko, who represents Suryawanshi, Sarkar and Girdhar, said the allegations are completely inaccurate. UBS, its attorneys and Jefferies have all said they would not comment while the lawsuit was pending.

At Investment Technology Group, the agency broker's algos have trade secrets embedded in them, said Mark Wright, managing director and global head of product management for all of the firm's desktop, algorithm and ATS offerings. His group is more worried about algorithm specifications-which are portable-than source code. An algo's specification is a document that shows how it's supposed to work, he said.

"We worry a lot about the intellectual property that goes down the elevator every night," Wright said. "A specific example, like a hunk of code that somebody walks out with, that's far less important than the employee that knows what to do with it-meaning, that model that that code embodies has a half-life of a few months."