THE LATEST TWIST IN HFT(HIGH FREQUENCY TRADING): ATOMIC CLOCKS

THE LATEST TWIST IN HFT(HIGH FREQUENCY TRADING): ATOMIC CLOCKS

Mr. J.K. shared this story with us, and I have to talk about it. In previous blogs I've talked about the growth of "dark pools" and HFT (high frequency trading) algorithms, where computers place trades on the stock markets and commodities markets, and a few pico seconds can mean whether a trade is placed or not, or whether a trade will be successful and profitable or not. Now, the latest twist, according to this article, is that atomic clocks are now to be brought into the picture:

Legendary Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

Yes, that's right, the rates of radioactive decay will be used to coordinate simultaneous trades in multiple markets:

The 16-page document was quietly published by the U.S. Patent and Trademark Office in February. Replete with schematic drawings, the filing describes a novel way for “executing synchronized trades in multiple exchanges.” The invention consists of not only sophisticated algorithms and a host of computer servers, but atomic clocks -- precisely calibrated to vibrations of irradiated cesium atoms -- to sync orders to within a few billionths of a second.

And if it works as advertised, one of the most illustrious names in the hedge-fund business could gain exclusive U.S. rights to a weapon capable of thwarting even the most predatory of high-speed traders.

The application belongs to Renaissance Technologies, the ultra-secretive and highly profitable $32 billion firm founded by mathematician and former code breaker Jim Simons. And the lengths it’s been willing to go to build and patent its own computer-driven technology -- at a potential cost of tens of millions of dollars -- underscores just how big a threat high-frequency traders have become to the industry’s largest and savviest players.

As you might expect, I simply cannot resist some high octane speculation - or in this case, really way-out-there-in-orbit speculations - about this story. In the past, I've pointed out that HFT really is a kind of trading that is no longer reflective of genuinely human markets. After all, the 2010 Flash Crash showed us what can happen when a computer "goes rogue" and places trades that can literally drive down or pump up a stock or even whole blocs of stocks with no real reflection of their market value (AI anyone?). And for those wanting "the nightmare" scenario, think of that episode from the CBS television series Person of Interest, where a malevolent AI literally crashes the New York Stock Exchange, then miraculously shuts down its trades just before the NYSE's "failsafe" systems kick in to suspend trading. And if you really want to speculate wildly, remember all those stories of UFOs shutting down, or worse, turning on, ICBMs in their silos and beginning the launch countdown. ETs, or AIs, take your pickm the bottom line is that HFTs provoke the philosophical debate not only of how secure digital systems are, and how well, or poorly, they reflect genuine market value and trades.

But leave all that aside for a moment, and concentrate on the new technology here: to place simultaneous trades in several markets via atomic-clock "time stamps" is vulnerable on another ground entirely, and that ground is revealed in the implicit assumption it makes about the nature of those radioactive isotope decay rates: that they are stable and constant over time and in all frames of references. And that's the rub, for they may not be. There is a body of evidence to suggest that they are subject to the torsion effects of rotating systems. A few years ago, in fact, the US Navy conducted an experiment where two syncronized atomic clocks were used, one remainin on earth, and another taken in a high altitude aircraft and flown as quickly as possible. THe result? When the aircraft returned to Earth its atomic clock was reading a few units of time(albeit, very small ones!) slower than the one on the Earth. But those few teensy weensy inuts of time would mean, in the world of high frequency trading, that trades may or may not be executed, or, if executed, be profitable or not.

Let's throw in another bit of data just for fun: satellites experience "drag" effects due to the rotation of the Earth, a phenomenon first theorized about in the private correspondences of the Austrian physicists Thirring and Lense and the German physicist Walter Gerlach (that name should ring a Bell to a few of my readers). Such drag effects would, if the Navy experiment is true, produce effects over time for trades executed via satellite networks employing such clocks. And access to satellites would be essential if one wanted to "coordinate trades in several markets".  Go a bit further down this road of high octane speculation, and one can envision a technology that could "tinker with" the decay rates deliberately, and you get the idea: the opportunities for fraud and economic warfare abound, in a kind of "econophysics with a vengeance."

Well, all of that is, to be sure, really wild and high octane speculation. Chances are, if true in any sense, it's a ways away. Relax. Nothing to see here, no need to worry.

But I can't help but thinking that perhaps, just perhaps, this may be another reason why certain countries are so anxious to build parallel international clearing systems.

See you on the flip side...

23 thoughts on “THE LATEST TWIST IN HFT(HIGH FREQUENCY TRADING): ATOMIC CLOCKS”

  1. Joseph’s friend, Catherine Austin Fitts, has just published her latest interview with The Saker (9 Jun 2016):

    https://solari.com/00archive/web/solarireports/2016/sr20160609_1.pdf

    One synchronicity, a “Jupiter Rising” comment by her:

    “…the question still remains: Who is at the top? If you look at what is happening on this planet economically, the number one problem is it’s being harvested. The question is: Where in the hell is the money going, and who is really in charge? That’s still a mystery. I don’t know, and I’ve spent my life trying to figure it out. Who is doing this?

    It’s really funny. There’s a science fiction movie called ‘Jupiter Ascending’. …at one point, a woman who is the sister of the man who supposedly owns Earth turns to the protagonist, who is a woman from America, and says, ‘You know, my dear, Earth is just a very small part of a much bigger corporation.’ … It’s a perfect scene. I said, ‘Oh, that’s where the money is going.’”

        1. Robert Barricklow

          Marcos,
          Max Keiser and Stacy have been focused on what’s happening in Puerto Rico – in recent Max Keiser Reports. Hardly an episode goes by w/o a mention.
          [episode 938/933 were laser focused]

      1. Robert Barricklow

        Goshawks,
        Your comments on AI run close to my take on AI.
        That some experts are thinking that technology is now guiding evolution, gives it another wicked inhuman twist.

  2. I am less concerned about this ‘new technology’ being used for HFT than I am for financial-weaponry purposes. Literal weaponry:

    One of the big strategies in military circles has been the ‘first strike’ scenario. For it to succeed, you have to both move fast-enough to be inside your opponent’s reaction time and apply overwhelming force. If it succeeds, it is devastating to an adversary.

    Now, apply the above ‘theory’ to the patent above. If I read it right, the method is capable of ‘landing’ an unknown but virtually-infinite number of trades at the NYSE nearly simultaneously. Possibly within the response-time for ‘supervisory’ algorithms to respond to protect the system. This satisfies both criteria for a ‘first strike’ capability…

    Given the blurry boundaries between financial interests, political interests, and alphabet-agency interests, I could see this capability being used as a strike weapon (or even a blackmail weapon). Some shadowy figure says “Sell 6 trillion shares of Pearl Harbor stock at precisely 9:11am” to some in-the-loop ‘stockbroker’. Boom…

    1. The possibilities for mischief go way beyond multiple trades.

      This makes some transactions fail if the time stamp is wrong. Excuse me but yes, time stamps are very editable. For a transaction to be valid it must occur and there must be a public record. They might protect individual trades. But the moment they enter the public record they can be edited by somebody – and look at how many people are defeating permissions to, for example, encrypt hard drives. If the time stamps are used to validate trades you can assume they will be used to validate their publication by somebody. That’s where they can be edited and stopped. The record is no longer valid. Of course it requires prior knowledge but as part of a blackmail or dirty tricks scheme…

      This is a twist but not an improvement.

  3. Sounds like it could also be used to create the kind of “free energy” stock trade mechanism we’ve discussed before – where the trades happen so fast and values reset to previous ones that the regular tracking system doesn’t even see them – one could create a “profit generating” system that would not show up on the main exchange.

    They would still have to devise a “foolproof” system of encoding communications between nodes in this system, say quantum entanglement, and even then there is some question about whether that would be secure from interception and corruption/spoofing. Any system which communicates in any form can have those communications interrupted and altered.

    For example, people think that biometrics is secure. Consider that, even if any given biometric item was actually perfectly unique (and that remains to be seen – we have even discovered that there ARE identical snowflakes), that data has to be stored in some kind of file and communicated is some way in order to use it to authenticate things. Well, that file is vulnerable to copying, and signals/sources can be spoofed – the computer comparing the data has no idea what it is communicating with, as it has to rely on data authentication to make sure it is talking with the machine it should be talking with. Even if you can’t copy the actual biometric, you can always copy the digital file and insert it into the authentication stream in the proper manner to fool the system. No system is perfectly safe, period.

    In either case, this and other AI noises sure make one think they are trying to create a sort of Sim City version of the Earth – one where real people, products, and consumers are no longer required. The simulation can continue on with the “virtual” Earth society, generating profit as the markets are doing now, with no relation to any actual physical reality at all. If all the “money” being used is “simulated,” or artificial (as is stock market proceeds), then one could create virtual “perpetual motion” money machines based on such simulations.

    We’ve seen this sort of thing being applied in the MMO game “Eve Online,” where whole galaxies exist virtually, with thousands of people running various companies and empires in virtual space, generating actual profit which can be removed from the system into the “real world.” We even had a prof at our school who even used that game to teach business principles in a class because it was so accurate and powerful.

    This would be the Matrix minus any people at all. With no use for people, one can see the “rationale” behind the eugenics push of late. Anyone remember the Star Trek original series episode about the “brains” in the clear dome (Transhumanists) that would capture living beings to fight in an arena (and bet on them) because they were so bored with their sterile AI world? Sounds like the same sort of insanity to me.

    1. Might be one way to both reduce and convert worthless derivatives into black ops physical assets and works.

    2. marcos toledo

      Yes Jon I remember that episode almost fifty years old. I have also brought that episode up on other posts on this website does anyone remember that episode title. The ultimate end of these financial junkies gambling with living beings as their sick entertainment they’re immortal thumps up or down oh no bodies to injure except their game pieces bodies.

    3. I agree completely with you. We’re led to believe that humans are broken in order to usher in the transhuman age. We’re not broken however. We are in chains.

  4. Yes I remember reading about the atomic clock experiment. Let’s hope they don’t do a “Mandela” on that memory record!

  5. Yes folks we the masters of the universe have everything under control. Oops what did that excuse for thinking just do oh it crashed the global economy and these are the clowns who want a cashless economy. Who think going digital is more secure than real money. I wonder if these people do their banking over the internet they just might be that dumb.

  6. Robert Barricklow

    They’re going to coordinate their decadence by decaying factors?
    Perfect synchronicity.
    Mad Magazine back issues have gone live.

    1. Robert Barricklow

      I’m reminded of an old Tom Clancy novel: Debt of Honor.
      In it the financial system melts down due to:
      decay of trust.

      Set you atomic clocks to:
      Countdown To Shutdown.

    2. Robert Barricklow

      The BRICS need to set-up their separate financial systems ASAP.
      This economic warfare is not only expanding inequalities exponentially but destroying any political capital within their economic crosshairs.
      It’s beat the clock for both the Nation-States/living wages.
      Today slavery flourishes where old rules breakdown & old ways of life; it grows out of social chaos. Neoliberals flourish on that kind of cheap labor.

  7. I remember reading that the rate of radioactive decay has been found to correlate with solar activity.

    This also makes me scratch my head about carbon dating of course.

  8. HFT is criminal activity and fraud; these “traders” are like the Looney Tunes roadrunner: they’re using high-speed data transfer technology to front-run the market, sniffing out then shadowing real trades that are going along at normal data rates so that they can play the market in the milliseconds before the real trade is registered.

    Financial parasites. Pure and simple, like all the other disgusting finance blood-suckers who aren’t in prison because they bought up the system and run the show.

    It’s very easy to clean up this outrage; simply charge a small transaction fee for every trade made; say, 0.1 cent per trade. You’d pay of the national debt in a week or so.

    1. All true but even though the “solution” being patented clearly seems to be proprietary networks nothing really in the essay or its link to convince me this is genuinely secure. The question by the way is who gets to collect the money?

  9. One has to wonder why high frequency trading is even necessary and just who the driving force behind it is. This has a distinct odor to it. If one wanted to trigger a crash of the worlds economy on command, you couldn’t ask for a more instantaneous method of doing so. It would literally go down at near the speed of light. The volumes involved would make it impossible to sort out in any realistic time frame to avoid massive disruption of all markets over an extended period of time.
    One needs to understand that the market, as it exists today, is totally manipulated, rigged, and propped up by bankrupt “too big to fail” entities long past their shelf life. In the background you can just barely hear that gigantic sucking sound as they vacuum up every last cent they can get their hands on before it all comes crashing down around us, not them, for they already have in place laws to see to it that the population of the entire planet bails “them” out.
    The sheer genius of the central bank Ponzi scheme along with the cooperation of corrupt governments allowing the “creation” of “money” from the vacuum has brought the world to the point of total economic annihilation complete with laws in place to protect the very people responsible for its destruction.
    You truly reap what you sow…

  10. It being Sunday I suddenly find myself thinking of that woman’s voice on TV saying (slowly) “I … believe…in miracles”. Given the number and variety of time devices around which are satellite-controlled, somebody does. A true Deep Player should A. not need separate timing devices to coordinate trades and B. should already have the means to defeat them.

    This sounds like an IP grab by snake-oil salesmen because 1. until Raygunz was elected, roughly, it would have failed the non-obvious patent test and 2. it demonstrates so clearly how little understanding those who claim to run our networks safely show of how these networks work. I mean the people who make the rules for our networks.

    While the last sentence is credible it doesn’t change that knowledge workers from China for one have claimed their censorship makes it impossible for these people to do their work without “illegal” “pirated” downloads.

    1. Um. 2 clarifications: 1. the people who are setting up that parallel clearance system are WORSE at deploying effective networks because they are so concerned about guiding what goes out over them and 2. while computers might be synchronized by atomic clocks in theory, that doesn’t mean the messages between them will be sent over secure sensitive and synchronized networks with little opportunity to change the time stamps on the messages. The UNIX/Linux command “touch” will change the time stamp on any file and change There are so many ways to change the time stamps it is not funny. This is not a robust solution in any way shape or fashion.

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