How Much Damage Can Malicious HFT/Malware Cause?

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 . . . ?


May 6’th 2010 Flash Crash Analysis: Continuing Developments

Robots Rattle Data Guru
APRIL 2, 2011

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