26 Apr 2013

Regulator warns social media cannot be trusted

2:05 pm on 26 April 2013

Australia's market regulator is warning traders to be more vigilant when it comes to social media, as US authorities investigate the source of a fake Twitter message that sparked a share slip on Wall Street.

Australian Securities and Investments Commission chairman Greg Medcraft says the brief, sharp dip on Wall Street due to a fake news tweet should be a wake up call to investors everywhere.

Hackers sent out a tweet from the Associated Press account on Tuesday saying there had been two explosions at the Whitehouse.

Within seconds the major share indices were down nearly one percent, wiping $US130 billion dollars off the value of the S&P 500.

Associated Press quickly exposed the hoax and markets recovered to where they were but investor confidence was rattled.

Reports from the US have suggested that some of the market response to the fake tweet was generated by automated trading algorithms that monitor Twitter and other social media sources and trade based on that information.

Mr Medcraft says automated trading is the "new normal", including in Australia.

However, he warned that algorithms that scan news headlines and social media for key words need to have better filters to ensure that humans - and not emotionless machines - decide when to buy or sell.