Social media and the stock markets after that one AP tweet

One tweet sent the stock market downward, but just for a minute. Now the Commodity Futures Trading Commissions is looking at how social media and the markets should interact.

The Commodity Futures Trading Commission (CFTC) is holding a meeting with high frequency traders in Washington today. On the agenda: Last week’s Twitter-generated flash crash. Hackers broke into the AP’s twitter account and reported false explosions at the White House. The stock market temporarily plunged.

Combine the flood of instant information -- often unverified -- on social media, with automated trading programs that buy and sell on that information in microseconds, and you get the potential for a big mess.

“I think that regulators need to take a step back [and] see how technology is impacting markets,” says CFTC commissioner Bart Chilton.

Concern about the impact of social media on the markets has been growing. The SEC recently said companies can share financial information on Twitter and Facebook, as long as they tell investors where to find it.

Social media isn’t the problem, says James Angel, visiting associate professor at the Wharton School at the University of Pennsylvania.

“It’s the availability of instant information that is the real risk here,” he says. “It’s just one more thing in the modern electronic world that can go haywire.”

Last week, the market worked as it was supposed to, Angel says, and quickly corrected when the news turned out to be false.

About the author

Amy Scott is Marketplace’s education correspondent covering the K-12 and higher education beats, as well as general business and economic stories.


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