1. Does this incident indicate the influence of Associated Press on markets?
or
2. Does this incident indicate the influence of Twitter on markets?
How did we end up using such easy to manipulate sources of information to have so much influence in our high frequency trading algorithms?
That’s not to say Twitter as a whole isn’t changing the way traders get their information. A Twitter feed with select authors is being integrated with Bloomberg terminals[1], we learned a couple of weeks a go.
As for high frequency trading, that is certainly a part of the problem, just as online security and sloppy reporting. I’m very much in favor of a financial transaction tax added to every trade to discourage high frequency trading[2].
[1] http://venturebeat.com/2013/04/04/wall-street-meet-twitter-n...
[2] http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-th...
This is hardly a new idea, and it is clear the system needs to be improved. From Wikipedia:
“Keynes was among the first proponents of a securities transaction tax. In 1936 he proposed that a small tax should be levied on dealings on Wall Street, in the United States, where he argued that excessive speculation by uninformed financial traders increased volatility. For Keynes, the key issue was the proportion of 'speculators' in the market, and his concern that, if left unchecked, these types of players would become too dominant” http://en.wikipedia.org/wiki/Financial_transaction_tax#Secur...
Not to mention massive compliance overheads and loss of efficiency in the middle office. Such a tax could in theory only be implemented on lit exchanges! More volume would move to the dark ATS'S/ECN's and Crossing networks. Shit people would just internalize and cross order flows and never actually execute a "trade". Making your solution pointless.
Keynes hahahahaha.
A large part of his failure is assuming his so called "dominant financial speculators" and the government overall or at least the financial regulators would not simply merge, which they've done. Therefore even if his tax was a good idea instead of an inherently dumb one, rather than being implemented correctly it would just be another crony capitalism weapon probably wielded exclusively as a club to pound down the "wrong" people, it would hardly be used to control the dominant financial speculators because they're the guys who purchased the elected officials to begin with!
You could argue that High frequency traders and other hedge funds might be a problem for the market but to lump the market makers in with the high frequency or even prop shop funds i think is being a little harsh to them.
What don't you like about the lowly market makers? Hell the Canadian option market would be a lonely place without them:)
With regards to Bloomberg terminals, I am aware of their Twitter integration but again I question their decision. Twitter is not a reliable source of information, particularly for financial markets.
If they go ahead with this, organized criminals and crackers can stage such attacks to make huge profits in minutes - buy low, sell high.
It is extremely likely in the future once/if "everyone knows" twitter (and/or AP) is nothing but spam/scam, then it'll be ignored for financial news.
I wouldn't worry too much about the ecosystem having crooks, they've always been there. I would worry if they're scientifically proven to be getting out of ecologically sound ratios.
A financial tax is laughable. That would truly impede market efficiency, a much better approach would be to mandate a minimum holding time of each order in the ELOB say 1000 micros before it can be amended or canceled.
Wtf, why? High frequency trading doesn't hurt anyone. If the HFT end up making bad trades, they lose money to the people that don't.
A hacked Twitter feed is only as good as the entity it represents. Once you have the credibility, it's probably the fastest way to spread the story to people too lazy to check it's validity.
There are news services that are dedicated to delivering important information that could affect markets as quickly as possible. I heard the news from one of these services directly before the market seriously dropped. The important question is why the markets reacted the way they did. There seems to be a sentiment that these sorts of moves are catastrophic and avoidable, but the reality is that these are movements reacting to real information from the environment that will affect the future state of economics. When bad news develops, more efficient markets drop faster in anticipation for this current or future event. This means that the information, or the bad event, has been diffused among the population.
With the AP situation, the news of such an extreme terrorist act would surely cause unbalance throughout Western economies; disrupting peace, supply chains, and many companies. This would have a direct impact on equities like the DOW. Within two minutes of the fake tweet, it was reported as being fake and the markets rebounded. In fact, I would guess that the majority of people hurt by this volatility spike were market making or algorithmic traders. They either were directly linked to twitter text feeds, selling on the way down and buying at the top of the retracement; or dump positions put on earlier in the morning. Of course, if the event happened, these traders would have been the winners.
The problem with this current situation is that the high-speed news delivery services spread this fake tweet without any verification (except trust that the AP feed is trust-worthy), and people with direct access to these services were most likely individuals with access to trading accounts, allowing them to drop a variety of assets, most notable the DOW or S&P.
Much like the endlessly rotating wheel of IT fads, the economy rotates around a cycle. Currently "we" (for some definition of "we") are in a pretty intense melt-up era which is at the end of a growth period. Low trading volumes, irrationally almost insanely high equity prices given technical stats, etc. Meltups always precede meltdowns. So the market is strongly prepared to drop and the slightest garbage news causes a momentary drop. This isn't a "story" or a "surprise" its just part of the endless cycle. Rather soon we'll have a real substantial drop, a moderately deep recession, then recovery, growth, etc. Well, at least in the past we've always recovered so we probably will again, or even if main street never recovers (like last time) wall street surely will recover... eventually, at least nominally (aside from inflation).
Now if this happened at a different point in the economic cycle, perhaps near a market low, rest assured nothing interesting would have happened, at least in comparison. That doesn't mean certain unrelated things are suddenly less relevant like twitter social media or AP mainstream media or HFT (What does HFT have to do with this other than being the current bogeyman for the financially intentionally ignorant and/or rabblerousers?)
A tolerably good engineering analogy if you understand the 4-cycle internal combustion engine cycle, sometimes it pings under really intense conditions. That ping doesn't carry relevant moral and ethical considerations of relative shifts in societal importance quite as much as the ping happens because out of the four cycles of a 4-cycle engine, its near the top end of the compression cycle and under intense load/operating conditions. Do the same "stuff" during the intake cycle and you don't get a ping (please no bad analogies to old fashioned carburetor backfires). My car engine pinging cares little about the relative importance of twitter vs AP and a lot more about current conditions WRT the IC 4-cycle.
1) That game is about being fast and first.
2) The finance world loves to try and predict the future from the past.
A technical person likely tempers his/her trust in Twitter with some understanding of it and concludes that false Twitter news is likely/inevitable.
A trader looks for a precedent of market movements caused by false Twitter news and concludes that a lack means a future occurrence is terribly unlikely.