The Hack Attack

Hackers participate in the Wikimania Hackathon at George Washington University in Washington, D.C.
Jim Watson | AFP | Getty Images
Hackers participate in the Wikimania Hackathon at George Washington University in Washington, D.C.

This week we experienced another meltdown moment, with someone hacking a Twitter account and tweeting a possibly malicious and certainly false message about explosions at the White House and an injured president.

Predictably, people in the markets wrung their hands and watched the Dow tumble more than 100 points. Commodity futures dropped by a like percentage. Folks then figured out the tweet was a hack hoax, and the markets recovered everything they had lost.

Things happen with technology. Nothing good ever comes from mistakenly hitting "reply all," for instance. But technology today can have a far more devastating impact than that brought about by an embarrassing email. It affects our news, our markets, our lives and our world. The Hack Attack demonstrates the perilous position we're in with social media and technology. It also may well have been illegal.

(Read More: Markets Sink Briefly on Fake AP Terror Tweet)

We've unwittingly accepted that all technology is good and that few, if any, safeguards are needed. But recently, a large financial exchange disclosed the identity of some of its traders to other traders (because of a software glitch). It's the computer's fault, but it's still a no-no.

Technology was invaluable in the manhunt after the Boston Marathon. Yet there was lots of false information, too, as well-meaning people took to social media.

In financial markets, is high-frequency "cheetah" trading all good? The short answer is no—not all good. Here's what we know: These traders' byzantine algorithms can consider things like tweets, headlines or mentions on a business news program. Does that make markets smarter? Perhaps, but on Tuesday the cheetah traders were faked out.

By and large, we've benefited from the good in technology, and we always have. Hardly anybody would argue that inventing the automobile was a mistake. But put one in the hands of somebody who's irresponsible and the car can get away from them in a split second. That's why we have traffic laws.

It also should be that way in financial market technology. Because markets can get away from us in milliseconds in something like Tuesday's Hack Attack.

Bart Chilton is a Commissioner on the Commodity Futures Trading Commission.