The Big Picture writes Could GPS Spoofing Cause Another Flash Crash?. Many financial systems use GPS to get accurate timestamps (GPS works by putting atomic clocks in satellites and broadcasting timestamps, your GPS clock is the most accurate you have). It turns out civilian GPS is easy to spoof, just fly a drone and broadcast fake timestamps. Apparently the major exchanges protect against this (not sure how, maybe they have their own atomic clocks) but high frequency traders (who really demand nanosecond accuracy) who are co-located to exchanges (to keep wires short) may be vulnerable.
4 comments:
If the definition of insider trading is:
The buying or selling of a security by someone who has access to material, nonpublic information about the security.
Then, how can high frequency trading not be considered a form of insider trading?
Does the general investing public have access to the nanosecond trading information used by the high frequency traders ?
TT
Yeah it's a hard question. I'm not sure how to access the information publicly but I know (some) exchanges are selling closely located server racks to keep the wires short since that's impacting trade times. Now if those are available to anyone (for a fee) that might count as too the public. After all, I can't make a trade on the NYSE, I have to go through a broker. I don't know all the details but could believe it's similar for wanting to buy into HFT algorithms offered by a broker.
Also I think your definition is slightly off. I think insider trading is about material nonpublic info about a company, not the security. As I understand it, the only things HFT uses are things like the price and volume, which strikes me as meta information. The price in a given nanosecond is certainly not anything that an insider (or really anyone) knows.
I have some (preliminary) concerns about HFT but don't know enough to really feel informed. It strikes as Olympic fencing (to make a current analogy). Something that started off sensibly and has evolved into something fairly ridiculous. Fencing looks to me as both people stab each other and then immediately look to the judges to find out who stabbed the other while on the offensive (it's not even who stabbed first because the electronics tell that).
Faster trades are fine, but at some point it crossed the line from the original definition of market to something where now computers are talking to each other. There are perhaps some benefits but it's not clear to me there aren't bad unintended consequences. Reminds me too much of the original Star Trek episode A Taste of Armageddon.
For some interesting analysis of some of this HFT I found NYNEX, who seems to sell software and the historical data for trading analysts, but also has this ongoing research link where they try to dissect what is causing things like the Flash Crash, the Knight Capital issue and their issues with HFT trading in general. It is interesting even if much of it is inscrutable to the uninitiated like myself. You may find it interesting, and there are pretty graphs.
http://www.nanex.net/FlashCrash/OngoingResearch.html
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