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CFTC Commissioner on #HackCrash: Beware of a Rise in Twitter Arbitrage

Daily Ticker

The Commodity Futures Trading Committee is currently holding a hearing on the market impact of the April 23rd Twitter attack.

The Twitter hack, which targeted an Associated Press account, sent a false tweet to 1.9 million followers that two bombs had exploded in the White House, injuring President Barack Obama. Markets reacted, losing $136 billion in value in a matter of minutes before quickly rebounding.

“This thing really did put the markets in a tumble,” says Bart Chilton, Commissioner of the CFTC. “As regulators I think we’ve always looked at social media as something that’s outside of our jurisdiction, but last week's hack attack shows we’re in a perilous position in regard to the confluence of social networks and trading so it can have a heavy and quick impact.”

Whether or not the CFTC will take an official position on the issue is up for debate. But Chilton gave The Daily Ticker a preview of some of the issues they might explore during the hearing.

“Social media is more than a marketing tool now,” says Chilton. “There may be something we need to do. I’m not down with what exactly it is yet. That’s why we’re having the meeting.”

This month the Securities and Exchange Commission allowed publicly traded companies to disclose market-sensitive information over Facebook and Twitter.

“As long as you have appropriate safeguards, that can be an okay thing,” remarks Chilton. “But if you’re reckless in the way you treat your cyber security then maybe there should be penalties.”

Without an intense increase in security, Chilton fears for the worst. “Say you’re a Fortune 500 firm and just before your quarterly reports somebody hacks into your system and says you're not going to meet your numbers by a long shot and the stock tanks,” he worries.

Chilton also fears the rise of Twitter arbitrage or investors using Twitter to move markets, “remember, high-frequency traders make money on volatility in markets.” Theoretically, they would have the most incentive to use Twitter to their advantage, he says.

“In general we have accepted that all technology is good,” he concludes. “Fast is good, that bigger is better and I think that puts us in a perilous position in regard to markets. As regulators we can’t assume that it’s all good.”

You can contact the reporter on Twitter: @NicoleGoodkind.

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