Authors: Carey Green
Most of the desks on the floor were empty, creating a sterile vastness that could have been mistaken for a hospital. Dylan had not been told why. As he was taking his seat, Stewart Pak came and sat down next to him.
Pak was a programmer par excellence, much like Binky. The similarities ended there. Pak was Asian and in his late forties. Though he was tall and thin, his belly was gaining on him.
Dylan glanced at each of the three monitors in front of him. One was set to Bloomberg News, the trader’s best friend, the other to CNN, for a general news summary. The third was set to the reconstructed trading system that Dylan had used at Ray’s fund. Stewart turned to him with a weary grin.
“Anything happening in the market?”
“Nada,” Dylan said, as he clicked onto a different news site.
“I read in
Barron’s
that the DOW is going up to 12,000. You think so?”
“I wouldn’t trust everything I read in
Barron’s
, Stewart. Their job is to sell newspapers; not make money in the open market.”
“I bought some IBM yesterday. I think it’s a steal.”
“Did you?”
“Sure,” Stewart said. “I read that it was going up to 200”
Stewart liked to trade as a hobby, and he had seemed particularly enthusiastic to discuss this with Dylan. Of course, Dylan hated talking shop or giving advice to pure amateurs. It was like asking a lawyer for free legal advice, or asking a doctor for a diagnosis over dinner.
“Be careful. Always remember, any stock can go to zero.” Stewart laughed.
Pak’s family had emigrated from South Korea, and Pak had done a stint in the military to earn his U.S. citizenship. From what Dylan could tell, Pak had risen through the ranks quickly, and had moved into Navy intelligence, presumably working on secret technology. He had taken an early retirement and had joined the FBI. He was gregarious and liked to talk, though he and Dylan hand not yet found a rhythm to their conversation. Dylan preferred to listen to his iPod or to the financial news.
The markets were at a lull and had been a trading range for the past ten days, and neither the S&P nor the Dow had moved more than one percent in either direction for a week. The summer doldrums were beginning to kick in, and the markets would soon reach a complete standstill as August came to a close. Most traders took vacation this time of year, as Dylan had often done while he was still employed. Now that he was working for the FBI, he wondered when they took vacations.
Dylan had worked carefully with Stewart to debug and analyze Binky’s software. Stewart was clearly talented, as he had been able to figure out much of what Binky had done, even when having very little documentation. Dylan knew that Binky’s code was dense, and that he commented very little in the code as he wrote it. Binky was also prone to flights of fancy, and used Italian and Spanish words in his programming, to display a sense of whimsy and flair. None of this had distracted Stewart. He had a test version of their software up and running within days. After a week, it was fully functional. Stewart had also inserted code into the various modules that allowed him to stop the code and examine it at any point during its execution. Despite the fact that he missed his friend Binky, Dylan knew that Stewart was completely capable of doing the job..
At first, the FBI had given them no clear guidance as to what the plan was. In Dylan’s view, this was partly illogical. When Dylan had pressed to find out what the FBI wanted to do, he had been told repeatedly that his job was simply to monitor market conditions. As the days passed on, Dylan began to understand that the FBI was worried about the “Flash Crash” scenario, a brief and sudden market crash that could wreak havoc on the markets. Though it was never talked about overtly, it was somehow believed that this was Josh’s plan.
Dylan had no clear idea if it were possible to recreate a flash-crash type of event, using solely the software that he and Binky had built. It seemed illogical. Clearly, if the FBI and CIA thought it was logical, they had tools to counterattack such a thing. If the CIA was involved, they had access to the best computing minds in the world, NSA geniuses who could crank algorithms that would make a mere mortals heads spin. In the days after 9/11, a virus had been released on the word that it had taken out thousands of servers and websites around the world. Dylan had always believed that this was the work of the CIA, a little technological wizardry designed to bring the Internet to a crawl for several days. It had never been confirmed, nor was there any way to prove this. Only the technological gods could have confirmed this and identified who those people were, Stewart turned towards Dylan with an inquisitive look.
“You really think somebody could crash the market with a system this?”
Dylan stopped typing and thought for a moment.
“Sure. Why not? What do you think?” Stewart contemplated his answer thoroughly.
“Its’ never been done before.”
“How do you know? How do I know for that matter? Maybe 1929 was caused by a guy with an iPhone. We only know what we’ve been told. Who do you think caused the ‘Flash Crash’? It could have been the CIA, could have been a fat finger, it could have been Bin Laden. I have no idea.”
“Maybe Wikileaks will tell us.”
“Yeah,” Dylan said sarcastically, “Maybe you’re right.”
The wildcard in this scenario had been Josh’s code. Pak had spent some time looking and examining much of the code. He deemed it to be extraordinary.
“So?” Stewart asked. “What are we doing today?”
“What we’ve been doing for the past ten days. We wait, watch the system, make test trades, order lunch...” “Looks like your lunch is already here.”
“Oh,” Dylan said, as he turned around. Vanessa was standing behind him holding a sandwich bag.
“Hungry?”
“How did you ever guess? Pull up a chair.” “Let’s go downstairs.”
“It’s raining,” Dylan pleaded.
“It stopped an hour ago. Besides, if it is, we can eat in my car; like in high school.”
“I didn’t have a car.”
“Well, I did, so pretend.”
“Okay.”
Outside, it had stopped raining and the sky was clear. There was a tiny marina next to the office, and a series of benches outside. They took seats next to each other and unwrapped their sandwiches. Dylan’s BlackBerry, set to silent, was buzzing, and Dylan ignored it as he began to eat.
“So,” Dylan said, “Always nice to have visitors.”
“That’s what they say in prison.”
“That’s why I’m saying it.
“I know you’re bored.”
“I am that. I want to help my friend, but as time goes on, it becomes less likely…”
“Don’t think like that.”
“I feel like I’m wasting my time here. There’s nothing for me to do.”
“You’re helping. It’s a job.”
“I should be out there trying to find Binky. That’s where I should be.”
“There’s not much more you could do.”
“I know that. Still, it doesn’t make it any easier.”
“I know it doesn’t.”
Dylan’s BlackBerry continued to buzz, and he pulled it out of his jacket pocket. When he saw the number of text messages, he frowned.
“What is it?”
“It’s Stewart.”
“From upstairs?”
“Yeah, it is.”
“What is it?”
“The market is down over 400 points in the last fifteen minutes.”
“What happened?”
“It’s not so clear. But we better take a look.” Without hesitating, they dumped their sandwiches, urned and walked briskly towards the office entrance.
Dylan hurried back up to the office with Vanessa in tow. Stewart was standing by the computer with his mouth agape. Dylan slid by him as he manned the chair in front of him.
“What the hell is going on?”
“I was just sitting here watching and all hell broke loose.”
Dylan jumped into the swivel chair and turned toward his computers, where panic was reigning on all three screens before him. All of the global market indices were beginning to roll over. The DOW was off three and a half percent and so was the S&P. He scanned the clock in front of him. It was 2:35.
Dylan scanned the Bloomberg headlines for news. There was no market news or event to cause such a steep decline. There were no obvious reasons why the market was tanking. He checked the Internet and market chatter on Twitter, but even the experts were bemused. He turned towards Stewart with a concerned look.
“This looks odds to me.”
“Why?”
“The move looks completely random and irrational.”
“So now what?” Vanessa asked.
“I need to take a look at something.”
Dylan loaded up the Motive software. A graph on the screen began displaying a chart of the S&P. Dylan changed the chart to show a one-hour projection. The price pattern over the last seven was like a flat plane followed by a series of high mountains peaks becoming progressively narrower. It was like a mountain range that was running out of land.
Dylan took his mouse and began to draw a series of lines between the highest and lowest price points over the last several hours, a type of connect the dots between the mountain-like price ranges that appeared on the screen. As he drew the lines, the computer would draw parallel lines above it. It was like Etch a Sketch for the iPod generation.
“What are you looking at?”
“I’m doing a wave count. Give me a minute.”
Dylan finished drawing the lines and clicked the send button. The hourglass cursor appeared as the computer began to calculate. Then, a series of numbers and projections appeared on their screens.
“What are those?” Vanessa asked.
“These are the Fibonacci projections of where the S&P should be.”
“Could you speak English?”
“I count the waves: the high points and low points of prices. Markets don’t usually go straight up or down. They move up a little, retrace, or down a little and retrace. The Fibbonacci sequences help us understand where the price points should stand based on market conditions. They should be near either the highs or lows. See how random the points are? The price moves are neither impulsive, no corrective”
“So what does that mean?”
“See? Its’ saying that this market drop makes absolutely no sense. If it was any country but ours, I’d swear it was some type of government intervention.”
“So now what?”
“I think you need to call Conroy. I have a funny feeling about this one.”
By the time Dylan had finished his sentence, Vanessa was already reaching for her phone.
Dylan and Stewart continued to monitor the screens in front of them, while Vanessa worked her cell phone with the speed of a cheetah.
“Holy shit,” Dylan said, “we are now down five hundred points.” After a few seconds, he added, “And falling.”
“Can’t they hit the switch?”
“There’s no switch on the NASDAQ, Stewart. It’s a computer.” Dylan continued to watch as the market chaos began to flow across the three screens. His Bloomberg screen had begun a blur of instant messages, and Twitter was exploding. Every trader working in the current time zone was messaging, as the financial markets began to spin into a web of chaos.
“The Dow is down 600.”
Dylan was speechless. With all the financial tools that he had at his disposal; all that he had learned as a chartered financial technician, all of his technical abilities had been deemed useless in seconds. All that he could do was sit back and watch.
“This is insane,” Dylan muttered under his breath.
“What going to happen?”
“I don’t know,” Dylan said. “We have to see what happens.”
Dylan glanced at his watch. Roughly thirty minutes had past. Trading curbs, the electronic equivalent of a parachute, had kicked in on the New York Stock Exchange, but this was only to delay the inevitable. Vanessa slammed her cell phone closed andgrabbed her purse while not even bother to acknowledge them.
“I gotta’ go” Vanessa said.
“Where?”
“They’ve isolated two places where the bulk of the trades seem to be coming from.”
“Are they legitimate?”
“What’s your definition of legitimate? They’ve found two boiler rooms that were supposedly out of business a year ago. The fact they are now doing heavy business is itself an issue.”
“I want to come with you.”
“Absolutely not. Stay near the phone.” In seconds, she was gone. Stewart turned towards Dylan quizzically.
“So what do we do now?”
“Nothing.”
They both turned back to their monitors as the market continued to fall.
Dylan watched as the market continued to fall, alternating between his Bloomberg screen and the replica of the trading system he had used at Corbin Brothers. He had entered several test trades into the system earlier that day, and ironically, they were making money. He had gone short for the fun of it, and now the positions were rising. He double-clicked on one of his positions, and it showed him the dummy company in whose name the bogus trade had been booked. Dylan stared at it. He then turned towards Stewart whose eyes were glued to the screen.
“Stewart, I’m going to show you something, but don’t tell anybody you ever saw what I'm about to do.”
“Why?”
“Because it's illegal.”
The patch into the order routing system of the Chicago Mercantile Futures exchange was a little known bug that only a handful of programmers had been able to exploit. In the interest of transparency, the exchange had made available the actual order flow and size of executed trades as they occurred in real-time. To protect the privacy of the clients, the names were withheld. They hacked into the system that Binky and company had developed permissible partial viewing of the actual client names, though often the names were masked in the form of a CIF, a customer identifier. It took a blend of technical wizardry and market savvy to interpret, but it was possible to decipher who was buying and selling as it occurred in real-time.
Dylan reloaded the trading system, starting with a unique command sequence that would invisibly load the hacked patch. Once the system had loaded, Dylan typed in the mnemonic of the E-mini contract of the S&P Futures.