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Twitter Hack Drops Stock Market 150 Points

Twitter Hack Drops Stock Market 150 Points

Hacking Twitter accounts has become something of a common occurrence of late and The Associated Press is the most recent victim. Unlike celebrity accounts however, the tweet had an immediate and significant impact on the stock market.

On Tuesday afternoon the hacked AP account sent a tweet reading, "Breaking: Two Explosions in the White House and Barack Obama is injured." This resulted in an immediate drop of roughly 150 points on the Dow Jones Industrial Average resulting in a loss of 136 billion in market value. This all happened in the span of 5 minutes at which point the account was suspended and a correction was distributed via other media outlets.

This drop was slightly different than the May 2010 flash crash which resulted in a market value of $862 billion disappearing in less than 20 minutes. That was attributed to a snowball effect where automated high frequency traders placed excessive sell orders. Protections were put in place shortly thereafter where trades aren't allowed for more than a specific percentage above or below stock's rolling five-minute average price. The Tuesday drop was attributed to algorithms reading news headlines and instead of excessive selling, buy orders were being canceled automatically resulting in sellers with no one to sell to, according to Bloomberg.

Roughly an hour after the AP Twitter hack a group called the Syrian Electronic Army claimed responsibility but offered no proof that they ever had control of the AP account. The Syrian Electronic Army has claimed responsibility for a number of recent high-profile twitter account hacks which they use to denounce the United States and show support for Bashar al-Assad.

A rumor coming from a credible and reliable news source resulted in a predictable market reaction. The problem is that the combination of instant unverified information and algorithms which automate high-speed buying and selling may worry troubling and possibly disastrous chain of events.

Image by: Businessweek