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US regulator considers new automated trading rules following AP Twitter hack

US regulator considers new automated trading rules following AP Twitter hack

CFTC to consult on the impact of social media analysis after markets tumble in wake of false tweet

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US regulator CFTC will consult on tougher rules on automated trading following the hack of Associated Press’ Twitter account, which caused markets to dive briefly last week.

The hack resulted in a fake tweet being sent out to millions of AP’s followers claiming that the White House had been hit by two explosions, and led to markets dropping $136 billion for a numbers of minutes, despite the message being promptly deleted.

The situation raised concerns about the close relationship between automated trading and Twitter, with the use of social media pattern recognition to inform buy or sell decisions with high frequency trading systems. 

In a review of the events at the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee meeting, chairman Gary Gensle said that the Twitter hack would prompt an consultation on the use of risk controls on automated trading in the next “month or two months” .

“As technology changes, our financial system and the rules in place need to be resilient,” Gensle said.

He added: “My hope is that we could put out a concept release that I’ve referred to as testing and supervision, which is about risk controls and system safeguards for automatic trading environments.”

Chairman of the Technology Advisory Committee, Scott D. O’Malia, warned that regulators need to quickly come to terms with the fast pace of technological change.

“The social media genie is out of the bottle and rather than attempt the impossible in trying to put the genie back in the bottle, we need to begin figuring out how markets and regulators will respond to this new market force,” he said.

Earlier this month the Securities and Exchange Commission revealed that it would allow publically traded companies to announce financial results through Twitter.

Calls for the social media site to increase its security by introducing two step authentication measures have stepped up since the AP incident.

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