|
There's two reasons here... 1) As was mentioned by Shubb, there is a predatory aspect to algorithms. If I know how your algorithm will work, I can create one that will be it. You can think of it as programming robots to fight. If I've seen the source code for your robot, I may be able to program one that can exploit it's weaknesses. (Worked against the Death Star!) 2) The HFT world works best when the ideas aren't well known. Let's say I identify a mispricing. It could be, "When this Mutual Fund moves, this similar ETF moves 0.1ms later, and these stocks react to the EFT and move 0.2ms later, but they forget these other 3 stocks 0.3ms later, so actively long those stocks for 0.3ms, and short the rest, and reverse after the time is up." No need to dwell on the details, just understand that it exists. If only one person has identified this mispricing, there are a lot of pennies to be swept up. As soon as two people know about it, the game is up. While this type of competition could conceivably be good for the market as a whole, it's definitely not good for ther person with the algorithm. If I have the code, perhaps I can deduce the algorithm. |
If it did, then Goldman's reaction would be well justified (to the extent that sub-millisecond arbitrage that siphons billions out of the markets each year and into the hands of a few firms can be justified).