"The markets recovered in minutes, but the episode has heightened concern among regulators about the combination of social media and high-frequency trading," reported Amy Chozick and Nicole Perlroth on Monday in the New York Times.
"The vulnerability, in part, stems from the Securities and Exchange Commission's decision to let companies and executives use social media sites like Twitter and Facebook to broadcast market- moving news," the Times reported.
Hackers from Syria, a global hotspot of civil war and terrorism, are the prime suspects in this latest episode of phony tweets. Other recent media victims of Twitter hacking include CBS, the BBC and The Guardian.
A huge problem for markets is the indiscriminate trades of turbo-charged, high-frequency trading systems that are built to make trades based on keywords in milliseconds, according to the Times. The phony message about President Obama was also posted on a new feature on Bloomberg's financial data terminals, which are ubiquitous with the hedge fund crowd and other major market participants.
In a fraction of a second, the program traders can move the market, get in and out, and normal retail investors are left in the dust, suffering major losses before they even know what hit them.
The technological advantage that program traders have over ordinary retail investors is massive and needs to be reined in to level the playing field.
This event is all too reminiscent of the disastrous "flash crash" of 2010. That's when an automated trading program cause the Dow to drop more than 600 points in just minutes, giving beleaguered retail investors one more reason to fear the markets.
Until controls are in place, the SEC needs to require all corporate communications -- meaning earnings, major announcements, guidance -- by way of press releases issued through nationally recognized outlets.
While it's working on the social media problem, the SEC must also seriously investigate rapid-fire program trading, which accounts for over half of all stock trading.
Ordinary investors believe that the market is rigged and that they don't have a chance. The SEC must take action to prevent another Twitter crash and restore faith and confidence in the markets.
The Securities and Exchange Commission needs to stop social media as a means of official corporate communication. It seems like anyone can access a high-profile Twitter account and move markets. This includes short sellers, disgruntled employees, competitors, as well as foreign hostiles. This simply needs to be stopped.
The potential for social media to do harm to investors became apparent last week, after a hoax used the Associated Press Twitter account to post the supposed breaking news that President Obama had been injured due to explosions at the White House. That report wiped out $136 billion in market value, with the Dow quickly dropping 150 points before snapping back.
Disclaimer: Zamansky & Associates are securities fraud attorneys representing investors in federal and state litigation against financial institutions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.