Nasdaq's Hack Attack Shocker!

On February 07,2011

Now we can add the market maker to the list of exchanges that have been the victim of cyber terrorism.

The hackers are getting ambitious, it seems. Instead of hacking social security and credit card numbers from little old ladies, they are going to the top of the financial family tree: the exchanges themselves.

Last week the London Stock Exchange reported that it had been the victim of cyber attacks last year and the UK media reported that some US exchanges had also been targeted by these online ne'er do wells.

This past weekend, Nasdaq revealed had been hit by cyber-vandals as well. The news, which came conveniently enough on a Saturday when the market maker is not active, reported that suspicious files were found on Nasdaq's site but no client information was compromised.

Why would a hacker want to disrupt an exchange? Although they can't move funds from one bank account to another or jury rig an ATM to spit out $20s like a toddler with a stomach bug, they can still do some serious damage. If you think about it, the mischief-makers might be out to destroy one company and favor another. Imagine if a major exchange that boasts near zero latency took 10 minutes to report a trade or a stock price? What if you could switch the price of, say, Google and Sears? It's not hard to imagine the havoc if Apple were to become a penny stock for an hour or an entire afternoon.

While we can assume that this could be the work of basement dwelling dweebs, as my former editor once called these hackers, we should also be open to the idea that this could be the work of people from overseas. This is a global marketplace after all and cheap high-speed servers and networks have leveled the playing field. In fact, who's to say that this isn't the work of people who are new to capitalism and have no time for fair play or transparency?

Along with an unnamed UK officials wondering this the LSE attack originated from Russia, the same report cast doubts on the official reason given for the May 6th flash crash that roiled the markets last year.

While we're all speculating, investment firms had better get their security in order. "I think the ultimate fallout from this could be a wake-up call for all of the exchanges and financial services firms to carefully reassess their security policy," says Sang Lee of Aite Group in an interview with Reuters.

With the evidence that two major exchanges were targeted for cyber attacks, one thing is sure: If banks and exchanges do not get their security in order, the days of high-speed trading could see more high-speed crashes.