How can banks stop disillusioned technologists stealing code?
The propensity for programmers to steal code from their employer seems to be an ongoing headache for financial services organisations. They’re starting to crack down on this in a way that’s not going to be great for employment prospects.
This month, hedge fund Citadel has accused former employees of stealing trading algorithms and taking them to a new employer, Jump Trading. This is the latest in a string of these types of cases including ex-Goldman Sachs programmer, Sergey Aleynikov (who had his conviction overturned), SocGen’s Samarth Agrawal (who had his appeal tossed out last week) and Bo Zhang, who stole software from the Federal Reserve Bank of New York.
A move towards outsourcing
We’ve explored the legal implications of stealing code – and the grey area of intellectual property around this – previously, but another consequence of this increase in cases is likely to be a move away from in-house development.
“I would argue that the competitive advantages to developing these platforms in-house isn’t what it was, that vendor solutions are much more sophisticated and that more banks are likely to outsource this work in the future,” says Ralph Silva, analyst at financial services research firm SRN. “It’s much easier to insert stricter clauses about intellectual property rights in an outsourcing contract than it is in an employment contract, which tend to favour the staff member.”
If banks outsource coding, this obviously means less work for in-house developers.
The star programmer is a myth
The whole concept of a ‘star’ programmer, who’s written a stellar piece of code in an investment bank and therefore attracts exorbitant salaries from independent trading firms is, by and large, inaccurate anyway, he says.
“The real skill isn’t the code itself, but the ability to combine the technology with the mathematics that drive the trading decisions,” he says. “This expertise lies within the business, so if a technologist leaves that behind at their previous company, it’s very unlikely they’ll be able to reproduce the same results at a new employer.”
The grey areas of work and personal life
This helps explain the increase in code and trading algorithm theft, he says. Another factor is the increasingly blurry line between personal and professional projects, argues Chris Potter, partner in the information security division at PwC.
“People work from home often, and use the skills and knowledge they acquired at their current employer on personal projects,” he says. “Even though the intellectual property rights are clear in employment contracts, programmers’ boundaries become blurred and it becomes a grey area.”
Potter agrees that there’s likely to be a slow gravitation towards package software solutions in investment banking, with in-house staff employed to tailor it for individual organisations’ specific needs.
The glass ceiling
It’s not as though banks can justifiably pay their technologists more in order to stop them being lured across to high frequency trading firms or boutique operations. How else can they keep them motivated? As we’ve mentioned before, technologists are increasingly being tempted away to firms where their sole focus is IT. Here, it’s possible for the best technologists to make it to the top. In banking, it’s heading in the other direction.
“It’s not as though technologists become CEOs in the banking sector,” says Silva. “Even, the chief information officer position, the highest position available, is increasingly going to people in the business.”
