Automated trading algorithms accidentally wiped $22Bn off Facebooks share price

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By Matthew Griffin Intelligence and the Senses 27th July 2017

WHY THIS MATTERS IN BRIEF

Algorithmic traders use automation to their advantage to try to beat the market, but when data goes bad the shockwaves can reverberate across Wall Street and the global markets

Facebook’s stock suffered a dramatic flash crash yesterday seconds after it released its second quarter earnings, and shares plunged 4.6%, wiping out over $22 Billion of value, before eventually recovering just ten minutes later, and while no one is certain why the stock crashed and rebounded so quickly, or dramatically, they believe that automation and algorithmic trading might be to blame.

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The crash came immediately after Bloomberg reported the earnings data incorrectly, and once the mistake was cleared up the stock surged – and there’s the smoking gun.

Publicly traded companies are required to release earnings data each quarter by the SEC, and some firms, like Facebook, summarise it on a wire service almost instantly, but over the past decade investors, increasingly known as Quantitative traders, or Quants, have been increasingly writing algorithmic trading programs, and even creating companies, such as Aidyia, that are completely automated and run without anyone in control, that trade based on these summarised wire stories automatically, and that’s what many people believe happened here.

In this case after Facebook’s earnings data was released Bloomberg released a wire service summary of the earnings results and the data was immediately traded on, but the summary Bloomberg initially released said Facebook missed its earnings expectations, and at 4.06pm a series of trades, priced at $158, were executed automatically. Bloomberg then issued a correction ten minutes later with the right data and the stock bounced back.

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Coincidence? Probably not.

The headline “CORRECT: Facebook 2Q Revenue Beats Estimates” ran at 4:14 pm on Bloomberg’s wires and had the note “This story was produced with the assistance of Bloomberg Automation.”

The stock was up around 3% this afternoon.

A large drop in stock price isn’t abnormal during earnings season, and a big miss on earnings can send a stock plummeting. In addition, Facebook is a heavily traded stock with a certain amount of volatility, but Facebook recorded a beat across the board in earnings per share, revenue, and user growth, so its initial drop was in no way as the result of a simple earnings miss.

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The rapid stock move though highlights the benefits, but also the dangers that automated trading can have on a stock, and it raises wider questions – if one bad story can wipe out $22 Billion what could two bad stories do? Or three? Then, going one step further what if one or more of the wires gets hacked – the impact could be severe, and the returns, for criminals at least could make this one “correction” look like chump change.

Matthew Griffin / About Author

Described by NASA as a "Walking Encyclopaedia of the Future" and one of the world’s most in demand keynote speakers Matthew Griffin, Founder and Futurist in Chief of the 311 Institute, a global Futures and Deep Futures advisory firm, is a multi-award winning Futurist and strategic foresight expert, author, lecturer, mentor, podcast and YouTube host.

With a distinguished career running global business units at Atos, EMC, and IBM today Matthew helps leaders and titans of industry from all over the world explore the impact of the inter sections of technology, culture, and leadership, then helps them create high performance organisations that can continuously disrupt, outpace, and outthink their competition.

15 times author of the hit series the Codex of the Future series Matthew's ability to identify, track, and explain the impacts of hundreds of emerging technologies and trends on global business, culture, and society has earned him a powerful reputation and a roster of clients that include royal households, world leaders across the G7, G20, and G77, and many of the world's most recognised and exceptional organisations including ABB, Accenture, ABN Amro, Adidas, AON, ARM, BCG, Centrica, Citi Group, Coca Cola, Deloitte, Dentons, Disney, Dow, EY, Google, KPMG, Lego, Microsoft, Legal & General, LinkedIn, Nokia, Paramount, PepsiCo, PWC, Qualcomm, RWE, Samsung, T-Mobile, UBS, Visa, WIRED, WPP and hundreds of others.

Matthew is regularly featured in the global media including the AP, BBC, Bloomberg, CNBC, Discovery, Forbes, Khaleej Times, Telegraph, TIME, ViacomCBS, WIRED, and the WSJ, and his mission is to help organisations create a fair and sustainable future whose benefits are shared by everyone irrespective of their ability, background, or circumstances.