Time Is Money, and GPS Spoofing Can Cost It
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.