How Much Damage Can Malicious HFT/Malware Cause?

April 3, 2011 8:55am by Barry Ritholtz

Here is a question for the paranoics out there: Can we tell any difference between High frequency trading and cyberattacks?

We have previously discussed how the NYSE allowing co-located HFT servers is the equivalent of turning our national security over to Skynet.

We now have a new Robot Uprising: It is becoming increasingly difficult for exchanges to tell the difference between ordinary market disfunctions caused by High frequency trading and purposeful attacks:

“New robotic-trading strategies are attempting to hack futures and equities markets — again. The suspicious activity appears unconnected to the October cyberattack on Nasdaq OMX Group (ticker: NDAQ) now being investigated by the National Security Agency. But there seems to be a new team of trading ‘bots abroad — and yes, they’re distorting prices.”

Eric Hunsader, founder of Nanex, who blamed the Flash Crash on HFT, has a new concern about the latest algorithmic funny business. Some are instantly buying or selling E-mini contracts in huge quantities in about 50 milliseconds. Another algo is rapidly changing order sizes in about 20 – 40 stocks on Nasdaq for a “few milliseconds several times a day. (Each stock is traded anywhere from 2,000 to 4,000 times a second, double to quadruple the norm).

The exchanges, which get paid by HFT traders, seem unconcerned. The activity has so far flooded the quote system, but has caused no harm. Yet.

I am VERY curious: What security procedures occur prior to a co-located server being installed? What rules govern which overseas firms can buy a co-located HFT shop?

Given the damage the creator (US/Israel/Germany/whoever) of the Stuxnet worm did to the Iranian Nuclear program, what can an HFT firm dedicated to damaging the US economy do if they attempted so? What security measures are in place to prevent this?

How much mischief can HFT/malware accomplish . . . ?

Sources:
May 6’th 2010 Flash Crash Analysis: Continuing Developments
http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html

Robots Rattle Data Guru
JIM MCTAGUE
APRIL 2, 2011
http://online.barrons.com/article/SB50001424052970203560404576228920925930788.html

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client. References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers Please see disclosures here: https://ritholtzwealth.com/blog-disclosures/

twitter

facebook