Twitter Incident Highlights Need for Human Intervention
The latest twitter hacking incident involving the Associated Press is an example of the need for human controls over machine-based and algorithmic trading.
“Although it largely recovered by the end of the day, I thought the difference in reactions to the fake report by machines and humans was particularly interesting – with human traders able to intervene in time, while many high frequency firms were unable to stop their automatic trading,” said Joe Anastasio, a partner in Capco’s Capital Markets practice.
Anastasio sees this as another example of the lack of human intervention in the markets and the total reliance on automated trading technology during events driven by news or errors.
“Without greater human touch in the markets, we can expect events like the one that occurred yesterday to only continue to occur,” he said.
The incident, the latest in a string going back to the ‘flash crash’ of 2010, suggests that the balance between human and machine control may have veered too far toward machines.
“At a time when we are struggling to win back public trust and confidence, each of these incidents says to retail investors that these things are out of control,” Anastasio said. “Maybe we’ve gone too far in eliminating the human element in every exchange and upstairs trading floor. We need to begin thinking about the long-term impact on public perception.”
Anastasio joined Capco from JP Morgan, where he was managing director of the firm’s North America Operations Groups. In 1995, he was appointed as director to the board of JP Morgan Securities, Inc. During a 22-year career at Salomon Brothers, he served as managing director of domestic and global operations, with responsibility for the firm’s international support organization.
Marketing professionals who see social media as a vital communication channel are often working at cross purposes with information security professionals who view services like Facebook and Twitter as trivial pastimes that expose the business to enormous risk.
“The problem is, when it comes to social media, these two facets of the organization need to come to terms with each other – and this was clearly on display Tuesday when the Dow Jones briefly plummeted over 100 points due to false Tweets from AP’s hacked Twitter accounts,” said Nick Hayes, a researcher at Forrester Group, in a blog posting.
This recent breach signifies that the potentially damaging impact of social media is real and growing, and that companies today aren’t doing enough to mitigate the risks.
“As social media becomes a legitimate source of news and information, the implications for inaccurate or inappropriate behavior continue to grow,” Hayes said. “Damaging or disparaging comments on Twitter (can have a real impact on your business and the way customers view your company and brand.”
The frequent Twitter account breaches also signify a larger trend of poor security behavior when it comes to social media. Easily discoverable passwords, shared accounts, minimal governance, and no security oversight are common reasons why recent social media hacks were successful, according to Hayes.
“Trading on a rumor is nothing new, but when the NYSE had human specialists on the floor, they would try to decipher whether a rumor was false, and then apply the brakes to trading,” said Anastasio. “Exchanges and regulators need to re-examine their attitudes toward automatic trading.”
Some material changes have come out of ESMA’s review of algorithmic trading.
This year BestEx Research launched algorithms tailored to futures market structure.
Institutions are prioritizing dark liquidity in their selection of algo providers.
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.