Wall Street Is Getting Too Glitchy

by Tom Taulli | August 26, 2013 1:01 pm

A good standby for science fiction is the computer gone haywire — think 2001: A Space Odyssey or War Games. It makes for great entertainment, but not so fun when they become part of the real world.

Just look at the financial markets lately. Most recently we just saw a clerical error[1] on the Tel Aviv Stock Exchange wipe out almost the entire market cap of Israel Corp. and take the exchange down about 2.5% in a five-minute period. But that’s just one in a slew of high-profile glitches and typos that have led to disturbances and even crashes:

The problem is, as computers continue to take more control over critical functions, these issues are becoming more norm than exception.

To get a sense of how we got here, you should listen to someone who knows quite a bit about technology: Virginia Rometty, current CEO of IBM (IBM[9]).

She believes computing has undergone three eras. The first came about in the 1950s and was focused on “Big Iron” machines that generally tabulated information. The next era, which came in the late 1970s, involved the surge in programmable desktop and minicomputers. It also led to the emergence of the Internet.

Now we are moving into the cognitive era — that is, a focus on computers that learn and make decisions (such as Watson).

The cognitive era has many key drivers like mobile, social, the cloud, Big Data and artificial intelligence. Consider that every two days, the world creates as much data as the world did in 2003, leading Rometty to call data the “world’s next natural resource.”

While the cognitive era is spurring about new riches — take a look at companies like Salesforce.com (CRM[10]), Workday (WDAY[11]), Splunk (SPLK[12]), Facebook (FB[13]), LinkedIn (LNKD[14]) and Zillow (Z[15]) — data as the next natural resource puts even more responsibility on technology companies and their products to avoid major problems.

Unfortunately, we seem to be making more and more fumbles.

I’m clearly not a technology Luddite. In today’s world, new innovations are critical for economic growth. But there has to be more investment in risk management, testing and monitoring. Continued malfunctions could further scare off investors, not to mention there are much broader implications outside of Wall Street. Imagine if your automated home locked you out? Or your whiz-bang car suddenly went berserk?

Institutions like the Nasdaq and NYSE have to learn in a hurry just how dark technology’s dark side is. If not, those entertaining sci-fi flicks might turn out to be prescient forecasts of the future.

Tom Taulli runs the InvestorPlace blog IPO Playbook[16]. He is also the author of High-Profit IPO Strategies[17]All About Commodities[18] and All About Short Selling[19]. Follow him on Twitter at @ttaulli[20]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. clerical error: http://www.cnbc.com/id/100986999
  2. NDAQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=NDAQ
  3. SEC issued a stinging report: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575032#.Uhte_RtmjXQ
  4. about three hours: http://online.wsj.com/article/SB10001424127887323980604579029342001534148.html?KEYWORDS=nasdaq+complexity
  5. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  6. trading accident: http://www.cnbc.com/id/100986278
  7. to a fraction of a cent: http://investorplace.com/ipo-playbook/bats-ipo-blows-up-and-shakes-up-apple/
  8. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  9. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  10. CRM: http://studio-5.financialcontent.com/investplace/quote?Symbol=CRM
  11. WDAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=WDAY
  12. SPLK: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPLK
  13. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  14. LNKD: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNKD
  15. Z: http://studio-5.financialcontent.com/investplace/quote?Symbol=Z
  16. IPO Playbook: http://investorplace.com/ipo-playbook/
  17. High-Profit IPO Strategies: http://goo.gl/TXQsz
  18. All About Commodities: http://goo.gl/FfP8R
  19. All About Short Selling: http://goo.gl/t5Jzb
  20. @ttaulli: https://twitter.com/ttaulli

Source URL: http://investorplace.com/2013/08/has-hal-9000-taken-over-the-markets/
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