@falsenews @whiny traders: 160 characters moved the market. big deal
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7/30/2019 @falsenews @whiny traders: 160 characters moved the market. Big deal
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@falsenews @whinytraders140 characters moved the market. Big deal
While the market reacted swiftly to the false tweet posted by the hacked AP account on April 23,
many comments on the markets reaction to the event were just as swift and premature. There
appears to be confusion between the use of headline news within automated trading and an
overestimation of the use of machine-readable news. On April 25, TABB Group measured the
institutional communitys opinions on the event. We received 234 responses. The highlights
include:
Market structure confidence has weakened slightly since August 2012, but within one key group
the buy side there has been an uptick (see pages 3 and 4).
When measuring the impact of the Hash Crash, two- thirds of participants say it has had noimpact on their market structure confidence (see page 5).
Nearly half of participants ignore social media in their investment decisions (see page 6).
Most respondents believe automated news and social media algorithms were most directly and
negatively impacted by the Hash Crash (see page 9).
Adam Sussman / Valerie Bogard
V11:016May 2013
www.tabbgroup.com
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2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 1
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 1Survey Demographics
Source: TABB Group
Tweet This Intro
@clueless 4/23: the Associated Press (@AP) tweeted Breaking: Two Explosions in the
White House and Barack Obama is injured. Mkts tanked
@AP had been hacked #stillnotCNN
@2fast2trade TV news showing untouched White House and quick reporting that tweet was
false sent markets up
@SEC_Jobs @Finra_Jobs While the impact on prices is gone, the event is causing more
market structure debate and new investigations.
@whinytrader One argument is if a tweet can make liquidity vanish and prices drop, mkt is
at mercy of HFT
@cololoco other argument is mkts behaved perfectly. Not a reaction to tweet, but AP. Add
Boston and rational fear drove sell off
@tabbforum After similar market disruptions we reached out to the to see how these issues
impacted their attitudes
@quantclients Data is from 234 responses between 4/25-4/26. Caveats below:
Participants self-selected the type of firm where they are employed
Some of the questions are leading, but someone has to do it
Most questions are multiple choice, but we offer Other and a write-in response.
Our community is heavily skewed toward the institutional community.
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2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 2
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 2
Cause and Effect: Which Participants Were Most Negatively Impacted
Source: TABB Group, Dataminr
Respondents from
different firms...
mostly agree on
who got hurt
the most Retail Institutional Market Makers News/Social Media Algos Other
not
everyone
was hurt for
the same
reason
Stop
Orders,
Fear
Algos
selling into
dip;
traders
reacting to
chatter
Forced to
take more
risk or
retreat
because of
uncertainty
Allegedly first to
respond to the
tweet, they sold
into the decline;
but were they
also the first to
buy?
Lack of human
judgment
hurts all
Exchange/ATS Buy Side Broker/Dealers Vendors/Services
But if those who traded of f the news first were also the first to
identify that the information was false, isnt it a wash?
Dataminr, a social media analytics company, says that it alerted its users two
minutes before the major news outlets broke the story that the tweet was
false.
There seems to be a popular misunderstanding regarding the use of machine-readable news
and sentiment analysis in trading, exacerbated by logical inconsistencies and flawed
analysis in the arguments that attempt to blame the market reaction to the false tweet on
automated trading. First, the AP tweet was posted at 1:07:50pm; the markets did not begin
to react until 20 seconds later. If what began the sell-off were automated trading strategies
reading Twitter, then the reaction would have occurred much more quickly. However, many
respondents believe news/social media algorithms were the most negatively affected. It ismore understandable that retail and institutional sellers took a hit during the brief dip. Even
during that period, though, there were likely as many buyers as there were sellers, so the
truth is that the event probably was a wash among many types of investors.
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2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 3
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 3
Market Structure Confidence, 2010-2013
Source: TABB Group
Confidence Bottoms
The results from TABBs most recent poll show an increasingly weakening confidence in
market structure. This continues to be a hot area for debate and contention. The flash order
controversies in early 2010 initially spawned the publics attention, followed by the Flash
Crash in May 2010. Then, in summer 2012, the markets saw two events that again
highlighted just how tenuous the relationship is between market structure and technology:
the Facebook IPO glitch and the Knight trading error.
Now technology has jolted the markets again, although this time in a less direct way:
through the social distribution of news. Luckily, although a shock, the Hash Crash was
short-lived and markets recovered quickly. The total time of the incident was about six
minutes. For comparison, the 2010 Flash Crash lasted about 20 minutes. The question is
whether the market reacted in a rational and orderly way in light of the news and the
subsequent reaction and recovery. The question is not whether the market (HFT or
otherwise) should react to news or social media, or even whether it is fair that some
actors can react more quickly; it is whether the way in which the market reacted highlights
any structural weaknesses.
It is also important to note that current market conditions for trading venues and brokers
are exceedingly tough. How confident would these folks be even with a perfectmarketstructure? The growing conflict between exchanges and broker-owned dark pools doesnt
help, considering those are the parties most responsible for controlling and guiding market
structure. While the cause may be muddled, it is worth noting that the percentage of
respondents that now have veryweakconfidence in market structure has now quadrupled
in only three years.
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2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 4
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 4
Market Structure Confidence April 2013, By Firm Type
Source: TABB Group
Exhibit 5
Average Market Structure Confidence, 2010-2013
Source: TABB Group
The confidence of broker/dealers fell significantly compared to August 2012. This change
could be partly from market disturbances, but it is also certainly due in part to the current
low volumes. Broker/dealersweak confidence could be affected by their depression about
the market overall.
The confidence of asset management and hedge firms seems to be split betweengetting
betterandgetting worse.The number of buy-side firms that had a neutral view onconfidence has decreased, with slight increases to the positive and negative. Execution
venues were also split to a degree, seeing an equal increase in both those whose confidence
was very high and very weak.
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2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. | 5
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 6
Impact of Hash Crash on Market Structure Confidence
Source: TABB Group
Given that one-third of respondents to the TABB survey said the crash eroded their
confidence, the fact that overall market structure confidence was weaker is no surprise.
However, it is important to note that the vast majority of respondents agree that the Hash
Crash had no impact on their confidence.
Some could argue that, given the nature of the tweet, the question is not why the market
dropped, but why it dropped so little. The reason for the drop was not that the President
had been injured or that there were explosions at the White House; it was because people
didnt know what was happening. After a week of terror from the Boston Marathon bombing
and reports of foiled bombings in New York and Montreal, everyone was on edge, including
the market. One small tweet, especially from a news agency as respected as the AP, was
enough to confuse the market and force traders to back out and stop trading.
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@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 7
What markets/instruments were most negatively impacted by the hash crash?
Source: TABB Group
Most of the survey respondents believe that US equity markets were most negatively
impacted by the Hash Crash; however, we do not take this to mean that the equity market
structure is to blame. If you look at the intra-day pricing during the Hash Crash, all markets
were affected. According to conversations with trading firms, financial futures contracts
across rates and equities began to react to the tweet first. Prices were jumping around,
which alerted traders to something amiss, and they began to scale back trading. Once news
about the tweet became widely disseminated (primarily via RANSquawk), many HFTs
stopped trading altogether to wait for more information. However, given that only the AP
and even then, only its Twitter account was reporting the news, traders were able to
quickly assume the report was false. Orderly price discovery worked its way as the market
went down, and as it subsequently went back up. From a market structure perspective,
everything worked as it should have, given the circumstances.
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@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
Exhibit 8
Who is the most likely culprit for the hack?
Source: TABB Group
Who Dunnit? ... And Why?
As regulators look further into what happened, more focus has centered on whether the
hackers were really trying to manipulate the markets through the AP, or if the market
impact was simply blowback. As the FBI and SEC investigate the incident, market
participants have already started drawing their own conclusions.
The Syrian Electronic Army (@Official_SEA6) claimed responsibility for the hack minutes
after the market rebounded. However, as evidenced by our poll, this claim didnt convince
everyone. Some still believed that the intention of the hack was to manipulate the markets.
The Syrian Electronic Army has not admitted to this motive, and the more innocuous
presumption is that it is continuing its strategy of hacking news organizations. Previously,
the SEA has taken credit for hacking the Twitter accounts of the Guardian, National Public
Radio, and CBS. In these hacks, the SEA tweeted things as simple asLong Live Syria or
Syrian Electronic Army Was Here.Unless its strategy is changing to now target the
economy, the market response to the tweet was likely an unintended consequence.
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@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
How Long Will the Regulators Take?After the 2010 Flash Crash, the SEC took five months to issue a report, to the dismay of
market participants who were impatiently waiting to receive more details about what went
wrong. Respondents to TABBs current survey believe the SECs response time will be the
same if not more for this incident.
One of the reasons the SEC was delayed in 2010 was because there wasnt an efficientsystem in place for collecting all the
necessary data. That gave rise to the
Consolidated Audit Trail (CAT), a means
of tracking all securities orders and
trades in the U.S. from start to
completion. However, FINRA has said
that it wont submit the plan to develop
CAT until December 2013. Therefore,
survey respondents probably got it right
in thinking that they will have to wait
again for a report while the SEC tries totrace back the trail.
Exhibit 9:
How long will it take the SEC to issue a report on
the Hash Crash?
Source: TABB Group
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@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
About
TABB Group
TABB Group is a financial markets research and strategic advisory firm focused exclusively
on capital markets. Founded in 2003 and based on the methodology of first-person
knowledge, TABB Group analyzes and quantifies the investing value chain, from the
fiduciary, investment manager and broker, to the exchange and custodian. Our goal is to
help senior business leaders gain a truer understanding of financial markets issues and
trends so they can grow their businesses. TABB Group members are regularly cited in the
press and speak at industry conferences. For more information about TABB Group, visit
www.tabbgroup.com.
The Authors
Adam Sussman
Adam Sussman is a partner and director of research at TABB Group. Sussman joined the
firm in 2004 as a senior analyst. Before that he served as a senior product managerresponsible for order management systems, routing and next-generation trading tools
focused on the equities and options markets at Ameritrade, Inc., a brokerage industry
subsidiary of Ameritrade Holding Corp. Sussman earned a BA in philosophy and comparative
literature at the University of Rhode Island. At TABB Group, Sussman has authored a
number of reports, includingUS Equity Mid-Year Review 2012; Reinventing Capital
Markets Infrastructure; Russia 3.0: Liquidity Perestroika?; Trading Net Alpha 2012; US
Equity High-Frequency Trading: Strategies, Sizing and Market Structure; Equity Risk
Models: The Evolution of Predictions; Equity Swaps and OTC Options: A Buy-Side
Perspective; International Perspective on Transaction Cost Analytics; among others.
Valerie BogardValerie Bogard joined TABB Group in October 2012. Previously, she contributed reporting to
Newsweek, Working Mother magazine, and Above Live magazine. She attended New York
University where she graduated with a Bachelors in Journalism and Political Science.
Recently, Valerie has contributed several pieces to TabbFORUM that focus on the regulatory
and political aspects of capital markets. She recently co-authored the report Cross-Listing:
The Tension of Cooperation.
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www.tabbgroup.com
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