Photo: Courtesy of United Artists
The high frequency trading (HFT) market, which is already controversial, might be vulnerable to “side-channel” attacks by hackers who can make millions of dollars in seconds by changing the speed of trading, says the founder of cPacket, a firm that develops technology that monitors the market.It works like a website crash does when bots flood a site with so many hits that becomes inaccessible.
But in a HFT side channel attack, what could happen is more subtle.
According to PC World:
It would function by adding extraneous packets to a legitimate data stream. Those extra packets slow the data just enough to give someone else a chance to move first in the market.
cPacket has developed a proof of concept showing that these side-channel attacks can be used to create tiny delays in the transmission of market data and trades. By manipulating specific trading activities by several microseconds, an attacker could gain unfair trading advantage.
Of course we’re a little sceptical about whatever the latest HFT conspiracy theory is claiming to be, but it helps that the report seems to be coming from a reputable source. He’s listed as Rony Kay, a former IBM research fellow and founder of cPacket Networks, a Silicon Valley firm that develops chips and technologies for network monitoring and traffic analysis. (Click here to download the PDF whitepaper he wrote on latency.)