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Skynet starts trading

Preparing to crash the stock market

It looks like a mysterious computer program was testing ways it could stuff up Wall Street last week. According to CNBC a single mysterious computer program placed orders and then subsequently cancelled them. It made up four percent of all quote traffic in the U.S. stock market last week. The motive of the algorithm is still unclear but it placed orders in 25-millisecond bursts involving about 500 stocks.

The algorithm never executed a single trade, and it abruptly ended at about 10:30 am. Eric Hunsader, head of Nanex said that it goes to show you how just one person can have such an outsized impact on the market. His system picked up that this was a single high-frequency trader after seeing the program’s pattern. It made 200 fake quotes, then 400, then 1,000 and  repeated everything. Also, it was being routed from the same place, the Nasdaq.

It could be that the software was testing the market. Sometimes software is used to stuff up the system so it slows down the quote feed to others and allows the computer traders to gain a money-making arbitrage opportunity. Of course it could be a single terrorist hacker which was working out a way to bring down the west by crashing Wall Street. But that would just be FUD and the sort of thing you could make a movie about. After all if the Internet became self aware and wanted to screw up humanity it could bring down the stock market just by carrying out such attacks.

This single program accounted for 10 percent of the bandwidth that is allowed for trading on any given day. In the US there is an investigation into wealth-destroying events such as the Knight Capital Group computer glitch in August and the market “flash crash” two years ago. Regulators are trying to see how they can rein in the practice, which accounts for 70 percent of trading each day, without slowing down progress and profits for Wall Street and the US exchanges.

Last modified on 11 October 2012
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