Norwegians convicted for outwitting algo
' The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks. Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine.
Prosecutors said Mr Larsen and Mr Veiby “gave false and misleading signals about supply, demand and prices” by manipulating several Norwegian stocks through Timber Hill’s online trading platform.
Anders Brosveet, lawyer for Mr Veiby, acknowledged that his client had learnt how Timber Hill’s trading algorithm would behave in response to certain trades but denied this amounted to market manipulation.“They had an idea of how the computer would change the prices but that does not make them responsible for what the computer did,” he told the Financial Times. '
ft.com
---
We now have computers spoofing markets, and humans preying on computers. Probability of escalation is high, the motivation being profit. Predatory high-speed transactions are designed not to trade, but to capitalize on trading by others. Two questions:
[1] This trend can be expected to continue. A day will come when markets are exposed to escalation of predatory transactions. On any given day, predatory transactions may become the market's primary activity. Then, how will trading skew? Will it reflect accurately on the underlying, or will it distort valuations and trading activity?
[2] On otherwise heavy trading, will it increase or decrease volatility and the possibility of a crash?
Jim |
