Apple’s Flash Crash

by Kevin D. Freeman on March 25, 2012

On Friday, the price of Apple shares mysteriously fell by $55 per share, a $52 billion change in the blink of an eye. This took place in the BATS system (which ironically stands for Better Alternative Trading System) that processes some 29,000 trades per second. Was this simply a software glitch or could it have been something more sinister at work?

We have previously explained some of the vulnerabilities within our trading systems that could be exposed to financial terrorism. Friday’s fiasco with BATS Global Markets doesn’t supply any level of comfort. In fact, BATS, which facilitates computerized trading and uses the tagline “making markets better” seems to be doing the opposite. BATS is significant because the two exchanges they offer account for 11-12% of all U.S. equity trading volume. Not bad for a fairly new firm (launched in 2005) to capture a trading level of almost half that of the NYSE and more than half that of NASDAQ. It is now the third largest exchange and will be battling for second in a couple of years, accounting for over 20% of U.S. stock trading by 2014 according to research from the Tabb Group reported in a recent BARRON’s.

The problem is that no one really knows how or why Apple could be hit as it was even if the share price did rebound quickly. This is the world’s largest company by market cap and there was no bad news to justify a drop like that. Worse still, it happened when BATS Global Markets was debuting as an IPO (Initial Public Offering), going public by allowing public investors to own a stake in the company for the first time. So, if there ever were a day that BATS wanted everything to go right, last Friday was it. The BATS stock traded at $15/share one second and 4 cents/share the next. Certainly doesn’t inspire confidence. That’s why BATS withdrew their IPO, a very unusual move after trading had already begun.

If this was just a software glitch, we have problems to address. But, what if this was a “weapons test” in line with the larger May 6, 2010 “flash crash.?” We have been warning about this possibility for years. Remember the words from Unrestricted Warfare that outline how a militarily inferior opponent can defeat a superior enemy:

“…if the attacking side musters large amounts of capital….and launches a sneak attack against its financial markets, then after causing a financial crisis buries a computer virus and hacker detachment…while carrying out a network attack against the enemy so that the civilian electricity network, traffic dispatching network, financial transaction network…are paralyzed, this will cause the enemy nation to fall into social panic, street riots, and a political crisis.”

It is clear that both China and Middle Eastern nations have amassed a great deal of capital, with $3 trillion or more each gathered in the last decade. We believe that a sneak attack against our financial markets took place from late 2007 through early 2009. Now, there is plenty of evidence that a network attack is not only possible but increasingly likely.  It is time for policymakers to recognize just how vulnerable our entire system is to a financial market meltdown. Computer trading is just one of many serious issues we identified in our book Secret Weapon.  We must acknowledge and address the risks BEFORE falling into social panic, street riots, and a political crisis. Yet, the man who the Chinese authors of Unrestricted Warfare identified as “the main protagonist” in the new method of financial warfare (George Soros) is predicting riots on the streets of America.

Let’s not lose our country. This is serious. Learn more at

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