“The Mother of All Flash Crashes”- Doug Kass Sees Cyber Surprises in 2016

Among the interesting reads regarding predictions for investments in 2016 is Doug Kass’s two part '15 Surprises for 2016’. President of hedge fund Seabreeze Partners Management, Doug Kass is well known as a longtime contributor to TheStreet.com and its Real Money Pro site.

Taking a gloomy stance, Kass didn’t hold back as he expects terror acts, both in the physical and cyber world, to wreak havoc on the global financial markets during 2016.

Among the predictions is that “Terrorism Goes Cyber”. Kass expects a large cyber terrorism event to be triggered by Middle Eastern, Russian and Chinese hackers who invade computers of the US financial industry. The results would lead to a series of trading outages affecting trading markets and overnight settlement systems.

For stock prices, Kass expects these disruptions to trigger the ‘The Mother of All Flash Crashes’ and lead to the largest single day point drop in the Dow Jones 30 as it falls 1,100 points. Among the effects, Kass stated that the flash crash would lead to renewed anti-HFT sentiment from the US government. This would cause legislation being written up to curb the “unfair trading field” of HFT traders and the outlawing of co-location servers and spoofing of trades and Market Depth Market Depth Market Depth is a characteristic of a given market and its ability to handle large order sizes without materially affecting the price of the underlying asset or currency pair. Broad-based definitions of market depth characterize it as a function of liquidity and trading volume.In its most simplistic sense, market depth reflects a real-time list displaying the quantity to be sold versus unit price. This in turn is organized by price level and is reflective of real-time market activity. In theory, Market Depth is a characteristic of a given market and its ability to handle large order sizes without materially affecting the price of the underlying asset or currency pair. Broad-based definitions of market depth characterize it as a function of liquidity and trading volume.In its most simplistic sense, market depth reflects a real-time list displaying the quantity to be sold versus unit price. This in turn is organized by price level and is reflective of real-time market activity. In theory, Read this Term.

Cyber fraud in 2015

While Kass’s cyber predictions for 2016 are extreme, they do follow unfortunate trends from 2015. In addition, many of his other scary forecasts are based on problems faced last year. For example, Kass’s top surprise of 2016 is "Terrorism Dismantles an Already Fragile Global Recovery". The gist is that Kass believes that shares in airlines, hotels and entertainment companies will underperform. While surprising for some, elements of this problem were seen in 2015 as the alleged ISIS downing of a Russian commercial jet decimated Egypt’s tourism to the Sinai region.

In terms of cyber related problems, 2015 turned out to be a tough year for many financial firms. Topping the list was the use of cyber theft of broker databases. Stealing customer information from brokers and banks such as JPMorgan Chase, ETrade, FXCM and Scottrade, hackers pumped penny stocks to these clients as well as posed as them to issue bank transfers to external accounts.

Another problem was a bout of DDoS attacks affecting many Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term related brokers and service providers. With their servers inundated with attacks, traders were not able to access their accounts and the dissemination of real time prices was halted.

On the bright side, with cyber hacking moving to the top of the headlines in 2015, awareness has increased in the financial industry of vulnerabilities and potential solutions. As such, financial firms are now more likely to be using technology for DDoS prevention, database protection and payment transfer tokenization.