August 5, 2012

How to Spoof High Frequency Traders Servers Reference-Time

How to spoof high frequency trader’s server’s reference-time.

Themis Trading on how the server reference-time can be spoofed for high frequency traders with negative consequences.

First, per Todd Humphreys at UT Austin – the GPS signals can be spoofed. Therefore anyone deriving a reference-time from such GPS could get a spoofed reference-time. 
High frequency traders whose servers are co-located with the matching engines at major exchanges may be more vulnerable to GPS spoofing. In the NYSE and some other exchanges, these co-located customers are offered either a timing feed from the exchange’s system time or a direct feed from GPS antennas on the roof. Many co-located customers, distrustful of the exchange’s system time, opt for the direct GPS feed.

The high-frequency traders who own the servers do not like inexplicable market behavior, and unlike old-fashioned traders who are obligated to stay in the market no matter its behavior, high-frequency traders can pull the plug at any moment. In the aftermath of the May 6, 2010 flash crash, it was revealed that automatic data integrity checks in trading algorithms were configured to trigger on unusual latency in the exchanges data feeds. In other words, if transaction time stamps do not look right, algorithmic traders flee the marketplace.

A spoofing attack that aggressively manipulated the timing in a large number of co-located servers could therefore cause a partial market vacuum, what traders call a loss of liquidity, with the result being increased price volatility and damage to market confidence.

Tags: time spoofing for servers, gps spoofing for servers, spoofing for high frequency traders, time spoofing for high frequency trading, themis trading time spoofing, themis trading gps spoofing