Banks struggle to secure trading codes

By Emily Chasan and Phil Wahba

NEW YORK (Reuters) - Banks and hedge funds already go to extraordinary lengths to protect the automated trading secrets critical to generating big, fast profits, but after an purported theft last month, they have even more work to do.

The computer trading codes and algorithms are worth tens of millions of dollars to the firms. To protect the data, they do everything from barring outsiders from certain floors, to requiring a complex series of entry passwords or even eye scans to enter sensitive rooms.

But whatever Goldman Sachs Group Inc (GS.N) had in place didn't stop computer programmer employee Sergey Aleynikov from walking out with vital code and copying it to a server in Germany, just before taking a new job at a start-up trading firm.

According to prosecutors, Wall Street's largest investment bank could "lose its entire investment" in the code -- "millions upon millions of dollars" -- if it gets out.

Goldman has not reported damage from the alleged heist, and Aleynikov told federal investigators he did not intend to sell the information. But the high-profile arrest of the programmer last week could spur banks to rethink developers' access to code.

"Today it's very easy to transfer code, so what banks may do is try to limit outside access, (such as) blocking the ability to email the code to yourself," said Petter Kolm, deputy director of New York University's mathematics in finance master's program.

A financial engineer who requested anonymity due to the small scale of the programming industry said it is likely that firms will now crack down on developers working on code at home, a common practice.

COMPETITIVE EDGE