A three-way federal probe into Tuesday's hacking of the Associated Press Twitter feed is well underway. While the FBI is looking into who did the actual cracking, the SEC and CFTC have also gotten involved as well--and their involvement could be more important in the long run. The SEC and CFTC are looking into how the fake post of an attack on the White House that left President Obama injured caused the stock market to cough up $136 million of its value in five minutes.
“We have standard operating procedures whenever there are market developments, and this is no exception,” said John Nester, an S.E.C. spokesman. “These procedures start with getting the facts about what occurred. We do not limit ourselves to looking at the catalyst for an event, but also its repercussions, to determine whether any further inquiries or actions are warranted.”The SEC and CFTC appear to be focusing on high-frequency trading algorithms that are programmed to react to certain headlines. Apparently they haven't evolved with the growth of social media. That doesn't sit well with CFTC commissioner John Chilton, who told CNBC yesterday that some changes need to be made, pronto.
Mr. Chilton, who referred to high frequency traders as “cheetahs,” noted that there was no “kill switch” in their technology to prevent them from acting on misinformation. “We need to set up basic rules of the road,” Mr. Chilton said. “We should not just accept technology blindly.”Some of those high-frequency traders may have been behind trading in 28 futures contracts during that five-minute period; the CFTC is looking into them.