Analysis: False White House tweet exposes instant trading dangers

Analysis: False White House tweet exposes instant trading dangers

NEW YORK - The upheaval in financial markets caused by a false report of explosions at the White House was brief, but its effect on traders who have come to rely on Twitter may last quite a bit longer.

Volatile price moves ricocheted through markets for stocks, bonds, currencies and commodities around 1 p.m. EDT on Tuesday after a tweet purporting to be from the Associated Press said there had been two explosions at the White House and that President Barack Obama had been injured.

The move in stocks, described by one futures trader as "pure chaos," briefly wiped out about US$140 billion (S$173.8 billion) in US market value. When it became clear that the tweet was fake, equities rebounded and more than recovered the losses - the S&P 500 index ended up 1.04 per cent.

The episode led some investors and traders to ask whether the increasing domination of high frequency trading means that there is an increasing danger that even highly questionable information can have a more dramatic impact than it ever could in the past.

What jolted investors and traders was the source: The Associated Press, which describes itself as "one of the largest and most trusted sources of independent newsgathering." The tweet was sent from its "verified" Twitter account.

"If that tweet had come from me, the market would not have crashed 100 points," said Gautam Dhingra, founder and chief executive of hedge fund High Pointe Capital Management LLC in Chicago. "Being a journalist, you have more credibility. The AP has more credibility being a larger and longer-living organisation."

The benchmark S&P 500 .SPX immediately fell about 1 per cent before bouncing back. US government debt prices briefly surged and oil and gold markets were also roiled.

The impact quickly started to wear off as traders began to question the veracity of the tweet. Within a few minutes, the AP had told Reuters and other news organisations that the report was "bogus" and the White House confirmed that there had been no explosions and Obama was fine.

But the damage had been done, and it appears to have stirred some soul-searching among traders for whom Twitter has become an important source of information.

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