Time Is Money, and GPS Spoofing Can Cost It
Big traders are GPS Time-savvy.
Here's the scary part: Humphreys says the right person with the right tools can fool these GPS-based time systems. There are really two GPS networks: an encrypted signal used by the U.S. military and a public one available to everyone, including trading markets.
Humphreys says sophisticated actors using spoofing technology on this unencrypted GPS system might blind an exchange's clocks. But he states firmly that the disaster scenarios -- a Dr. Financial Evil holding markets hostage -- are unlikely. Nobody knows how markets will react in a forced GPS outage, so designing a profitable strategy is slippery. Spoofing requires technical sophistication and patience.
Plus, major trading systems take major precautions.
The New York Stock Exchange says it uses a number of backups, including highly accurate atomic clocks, and other tools it would not disclose, to keep time over an extended period in case of GPS outages, which it says are more likely to be caused by natural phenomena such as solar storms."Spoofing attacks are pretty low on my list of concerns," Bach says. Direct Edge, BATS Exchange and Nasdaq did not comment in time for this column, but Humphreys says they all likely use similar backup systems. "They're not going to spare much expense in getting a good timing signal," he said. The risk is in so-called colocation.
Where trading time risks are real, Humphreys says, is in so-called colocation trading. These are the racks of trading servers that usually live within 100 meters or so of the main trading computers where electronic exchanges actually happen. That's the so-called matching engines, for you geeks at home. Humphreys believes there isn't the awareness there should be for the time risk run by traders who use these colocated servers. All investors need to do to get a feel for the danger in so-called "co-lo" time gone wild, Humphreys says, is go back in time to May 6, 2010, the day of the Flash Crash. While he doesn't believe GPS spoofing had anything to do with the this collapse, events reveal that when time gets wonky, markets get wonky. "Many algorithms running on the colocated servers pulled out of the market in response to the timestamp discrepancies," Todd says. When timing errors appeared, he says, high-frequency traders fled markets, a liquidity vacuum ensued and algorithms began a wave of destructive trades. Humphreys believes today's colocated traders run this kind of risk, because nobody knows if they are using the same rigorous GPS timing standards as the major trading hubs. "I'm worried because colos may not be tapping into the exchange's time," he says. Call your colo
Which, friends, puts the burden of managing the risks with GPS time exposure back on the traders' lap. In other words, it's time -- like right now -- to get on the horn with your financial trading solution provider and have a heart-to-heart about the time quality used in your trades. "You want to talk about overall reliability more than anything else," NYSE's Bach says. "And we do provide the same quality of time systems we use to those who want it, including co-lo customers. From there it's an internal conversation depending on whoever is architecting your system." We live in an interesting time, indeed.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV