Bots can make fake news a prob­lem for Wall Street

For 2 min­utes, Google was buy­ing Ap­ple — thanks to phony head­line

San Francisco Chronicle Late Edition - - BUSINESS REPORT - By Re­nae Merle

The story was ex­plo­sive if true: Google planned to buy Ap­ple for $9 bil­lion, ac­cord­ing to a Dow Jones Newswire head­line this week.

The prospect, of course, is ab­surd not only be­cause Ap­ple is worth more than $800 bil­lion but also be­cause the story said “Google Chief Ex­ec­u­tive Larry Page had se­cret talks with the now-de­ceased Steve Jobs in 2010 to firm up the deal.”

Dow Jones deleted the story af­ter just a few min­utes, ex­plain­ing that it was ac­ci­den­tally pub­lished as part of a tech­nol­ogy test. And so­phis­ti­cated stock traders prob­a­bly didn’t even have enough time to digest the news be­fore it was cor­rected, much less take any ac­tion.

Yet that brief bit of fake news was blamed for a mi­nor jump in Ap­ple’s stock price to about $158 per share be­fore fall­ing back to around $155. But if the head­line was too ab­surd to be be­lieved, who was likely mo­men­tar­ily tricked? Bots.

An in­creas­ing por­tion of stock trades ev­ery day are con­trolled by al­go­rithms, many of which scan Twit­ter feeds, news head­lines and other so­cial me­dia look­ing for tid­bits that can move mar­kets. And much of that trad­ing is tak­ing place in the blink of an eye with high-speed traders who mea­sure time in mi­crosec­onds. In a re­cent re­search re­port, JPMor­gan Chase es­ti­mated that just 10 per­cent of daily trad­ing is done by hu­man stock pick­ers.

The grow­ing re­liance on tech­nol­ogy rather than hu­mans to make stock trades has made iden­ti­fy­ing dis­rep­utable

news a big­ger chal­lenge, mar­ket in­dus­try vet­er­ans have said. In 2013, a fake tweet about an ex­plo­sion at the White House sent mar­kets on a roller­coaster ride. In Au­gust, a false tweet that White House eco­nomic ad­viser Gary Cohn was re­sign­ing sent stocks tum­bling.

“This is why the ma­chines, no mat­ter how smart, are never go­ing to be as so­phis­ti­cated as a hu­man,” said Tom Lin, a law pro­fes­sor at Tem­ple Univer­sity, who has stud­ied the im­pact of tech­nol­ogy on fi­nan­cial mar­kets.

“The bots can­not dis­cern hu­mor or nu­ance. They have no real con­text. They are just go­ing to ex­e­cute it on what­ever they see.”

The news head­lines ap­peared for only a few min­utes, from about 6:34 to 6:36 a.m. Tues­day. But that is now enough time for bots to move mar­kets sig­nif­i­cantly, said Lin. “Two or three min­utes is a long, long time,” he said.

For long-term in­vestors, such glitches are not a ma­jor prob­lem, said Lin. The mar­kets will cor­rect them­selves over time. But on a day-to-day ba­sis, it is po­ten­tially prob­lem­atic. “It is alarm­ing be­cause it calls into ques­tion the in­tegrity of the fi­nan­cial sys­tem,” Lin said.

Vir­ginia Mayo / As­so­ci­ated Press Daniel Leal-Oli­vas / AFP / Getty Im­ages 2016

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