Dr. Joseph P. Farrell
July 11, 2016
Mr. J.K. shared this story with us, and I have to talk about it. In previous blogs I’ve talked about the growth of “dark pools” and HFT (high frequency trading) algorithms, where computers place trades on the stock markets and commodities markets, and a few pico seconds can mean whether a trade is placed or not, or whether a trade will be successful and profitable or not. Now, the latest twist, according to this article, is that atomic clocks are now to be brought into the picture:
Yes, that’s right, the rates of radioactive decay will be used to coordinate simultaneous trades in multiple markets:
The 16-page document was quietly published by the U.S. Patent and Trademark Office in February. Replete with schematic drawings, the filing describes a novel way for “executing synchronized trades in multiple exchanges.” The invention consists of not only sophisticated algorithms and a host of computer servers, but atomic clocks — precisely calibrated to vibrations of irradiated cesium atoms — to sync orders to within a few billionths of a second.
And if it works as advertised, one of the most illustrious names in the hedge-fund business could gain exclusive U.S. rights to a weapon capable of thwarting even the most predatory of high-speed traders.
The application belongs to Renaissance Technologies, the ultra-secretive and highly profitable $32 billion firm founded by mathematician and former code breaker Jim Simons. And the lengths it’s been willing to go to build and patent its own computer-driven technology — at a potential cost of tens of millions of dollars — underscores just how big a threat high-frequency traders have become to the industry’s largest and savviest players.
As you might expect, I simply cannot resist some high octane speculation – or in this case, really way-out-there-in-orbit speculations – about this story. In the past, I’ve pointed out that HFT really is a kind of trading that is no longer reflective of genuinely human markets. After all, the 2010 Flash Crash showed us what can happen when a computer “goes rogue” and places trades that can literally drive down or pump up a stock or even whole blocs of stocks with no real reflection of their market value (AI anyone?). And for those wanting “the nightmare” scenario, think of that episode from the CBS television series Person of Interest, where a malevolent AI literally crashes the New York Stock Exchange, then miraculously shuts down its trades just before the NYSE’s “failsafe” systems kick in to suspend trading. And if you really want to speculate wildly, remember all those stories of UFOs shutting down, or worse, turning on, ICBMs in their silos and beginning the launch countdown. ETs, or AIs, take your pick, the bottom line is that HFTs provoke the philosophical debate not only of how secure digital systems are, and how well, or poorly, they reflect genuine market value and trades.
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