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Pentagon Turns To High-Speed Traders To Fortify Markets Against Cyberattack (wsj.com)
Slashdot reader Templer421 quotes the Wall Street Journal's report [non-paywalled version here] on DARPA's "Financial Markets Vulnerabilities Project":
Dozens of high-speed traders and others from Wall Street are helping the Pentagon study how hackers could unleash chaos in the U.S. financial system. The Department of Defense's research arm over the past year and a half has consulted executives at high-frequency trading firms and quantitative hedge funds, and people from exchanges and other financial companies, participants in the discussions said. Officials described the effort as an early-stage pilot project aimed at identifying market vulnerabilities... Participants described meetings as informal sessions in which attendees brainstorm about how hackers might try to bring down U.S. markets, then rank the ideas by feasibility.
Among the potential scenarios: Hackers could cripple a widely used payroll system; they could inject false information into stock-data feeds, sending trading algorithms out of whack; or they could flood the stock market with fake sell orders and trigger a market crash... "We started thinking a couple years ago what it would be like if a malicious actor wanted to cause havoc on our financial markets," said Wade Shen, who researched artificial intelligence at the Massachusetts Institute of Technology before joining Darpa as a program manager in 2014.
Among the potential scenarios: Hackers could cripple a widely used payroll system; they could inject false information into stock-data feeds, sending trading algorithms out of whack; or they could flood the stock market with fake sell orders and trigger a market crash... "We started thinking a couple years ago what it would be like if a malicious actor wanted to cause havoc on our financial markets," said Wade Shen, who researched artificial intelligence at the Massachusetts Institute of Technology before joining Darpa as a program manager in 2014.
If people actually understood the stock market from the game theoretic point of view that it is designed as, they would see that no order can be placed to the detriment of any other actor's orders, and that in fact, every order either increases the value of the market to *some* set of actors in that market or at worse has no effect at all.
There is no such thing as a market order that can unfairly affect anyone else's position in the market (with the exceptions of insider trading and front running, both of them are rightly illegal).
The "fixes" people propose to the market actually tend to make it worse. For example the, "best execution" laws have made the system worse, as they have attempted to implement the physically impossible by force of law, where simple arbitrage already provided the mechanisms and market incentives to do this. (As a result of this "fix", something like front running becomes possible for the select few).
Slowing down the market like you suggest is another unnecessary and actually harmful solution to a system that is specifically designed and intended to provide instantly up to date prices that reflect all known information about a stock, in the limit (the efficient market hypothesis).
Actually allowing the stock market to operate as it is intended, with all the price volatility that involves, is actually the best available option. Those who correctly act against that volatility will profit.
One more example, there is a law that states an order cannot be placed that you do not intend to fill. A couple of uni students saw patterns and vulnerabilities in HFT bots, that reacted to large orders that were taken down after the uni student's own bots ate up the orders the HFT bots placed in response to them. The market moved wealth from the inefficient HFT bots into the hands of the more efficient uni students just as it is designed to do. However, this upset the HFT bot owners (Goldman Sachs and co)... so the uni students were arrested, charged and imprisoned, instead of being rewarded with the millions they rightfully earned. The IRONY of all this is that the HFT bots place and cancel many thousands of orders per second... but they are owned by ultra rich people and this is not a free market, but crony capitalism.
The correct answer to this, although highly unlikely, is for people like you to learn how these things are meant to operate and understand them before you suggest ideas that actually cause harm instead of solve problems... I guarantee you that a "solution" like this will result in even more money for the likes of GS and co at the cost of everyone else.
TLDR; Learn microeconomics.
Given the parties involved in the financial meltdown of 2008, the irony and stupidity of looking to those on the inside to help "fortify markets", fucking kills me.
Congress hasn't done much to prevent another meltdown, so perhaps we should focus on the real threat. Greed N. Corruption is still in charge of Wall Street.
No, you are simply wrong.
What you describe is only possible with "front running" where an actor can intercept orders before they are placed on the queue and made publicly available.
If everyone only has access to orders after they are on the queue, and publicly available, then the (let's use) HFT operators can only either improve the buyer's opportunities by placing a sell order at a lower price than the existing orders, improve the seller's opportunities by placing a buy order at a higher price than the existing orders, or have no effect at all.
You don't trade.
> Here's a cut and paste from someone that has not heard of the 1987 Black Monday crash.
Quite the contrary. Crashes are GOOD things for some people as it provides the opportunity to get stocks at very low prices. Especially transient crashes... Similarly with bubbles. Volatility rewards those who act against it... As the market SHOULD.
The big problem is that everyone wants the stock market to only go UP... This looks good for politicians and everyone thinks that helps their retirement plan and stuff... The purpose of the market is not to always go up, but to provide information and allocate resources efficiently.