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Social media impact examined

by AMY CHOZICK New York Times News Service on April 29, 2013 10:40 AM

Could the global economy hinge on 140 characters?

That’s the question the financial industry and government regulators are trying to answer after a Twitter hoax Tuesday claiming President Barack Obama was injured in an explosion at the White House caused the market to temporarily drop 150 points, erasing $136 billion in equity market value.

The market recovered in minutes, but the episode heightened concern among regulators about the combination of social media and high-frequency trading.

The vulnerability, in part, stems from the Securities and Exchange Commission’s decision this month to let companies and executives use social media sites such as Twitter and Facebook to broadcast market-moving news.

High-frequency trading systems are designed to make trades based on keywords within milliseconds. The hoax message also went out on a new feature on Bloomberg’s financial data terminals that delivers select Twitter posts to hedge funds, investment banks and other users.

The Commodity Futures Trading Commission plans to hold a public meeting Tuesday in Washington with a couple dozen high-frequency traders to discuss whether there should be additional safeguards to protect against the impact of social media on markets.

“In 2010, we passed Dodd-Frank, the big financial reform bill, but nowhere in there do they mention high-speed trading or technology,” said Bart Chilton, a trading commission member. “That’s how quickly markets are morphing. Now, here we are three years later, woefully unprepared.”

The false report was posted Tuesday after Syrian hackers broke into The Associated Press’ Twitter feed.

Immediately, the mood shifted on the floor of the New York Stock Exchange.

“It was nine, 10, 11 seconds and it was fast and then the question was ‘Why?’” said Andrew Frankel, co-president of brokerage firm Stuart Frankel & Co.

He said traders realized shortly after that the post was a hoax since the television screens showing Bloomberg and CNBC had nothing about an explosion at the White House. Still, the episode recalled the 2010 “flash crash,” when an automated trading program caused the market to sink more than 600 points, and left a deep skepticism of social media on the trading floor.

“You look at how quickly that happened and now everyone wants to release corporate earnings on Twitter,” Frankel said, in between calling out “Sell!” to his team. He added: “The concern is ‘How do you know what’s right and what’s not? How do you know what’s hacked and what isn’t?’”

Spokesmen for Twitter and The AP declined to comment.

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