(Sent via email to the FT on 25 April 2013)

Sir, The mini-crash induced this week by hackers disseminating a false story through a news agency’s Twitter account highlights a major security flaw in financial markets. Years of technological investment have made markets so complex, so fast and so interconnected that investigators would be hard pressed to find who might have benefited from such a dislocation in asset prices. Analysts have estimated that the incident triggered $200 billion in trades in mere seconds; a forensic examination would take weeks or more, by which time sophisticated swindlers would have squirreled away their profits in any number of untraceable offshore accounts.

That the businesses of banks and brokers and market infrastructure operators all thrive on transaction volume has led to a dramatic loosening of controls over who has access to trade on electronic markets. At the same time, those markets’ core mission of capital formation has been replaced with a focus on short-term trading. In these conditions the task of unraveling who did what and when across multiple trading platforms becomes virtually impossible. Until legislation moves settlement cycles (days) closer to trading (microseconds) regulators won’t have a chance. As it is, they've shown up at the arms race with a magnifying glass and a notepad.

For as long as such an imbalance persists, so also will the very real danger of nefarious groups seeking to profit from rumors they deliberately inject into the trading ecosystem via social media. If they hadn’t thought of doing so before last week, we can be sure they are thinking about it now.

Eli Lederman

London, UK