From the March 01, 2011 issue of Futures Magazine • Subscribe!

Cyber-attacks draw scrutiny

Hacked!

Cyber-attacks were reported last month at Nasdaq OMX in the United States and the LSE in the United Kingdom. The round of hackings has regulators and traders questioning the safety and security of these financial institutions.

Nasdaq OMX reported it had located suspicious files in its servers, but assured investors they were not near the trading functions of the exchange. The LSE seemingly was attacked as it switched its servers over to a Linux system. Both attacks reportedly were traced to Russia, but that does not necessarily mean the hackers were Russian — they may simply be using Russian IP addresses.

A number of agencies are investigating the incident in the United States, including the Securities and Exchange Commission (SEC), FBI and Secret Service. The widespread interest highlights the severity of the attacks.

The incidents have regulators, investors and traders concerned about the viability of exchanges as they continue to migrate to electronic-only trading platforms. The result is even greater scrutiny on IT departments and regulators.

"Exchanges are self-regulatory organizations and they are subject to the oversight by their primary government regulator. To the extent an exchange does not have proper infrastructure in place to be able to combat hacking and other types of man-made disruption successfully, such organizations could be subject to fines, administrative actions and other regulatory penalties," says Jay Gould, head of the investment funds practice at Pillsbury.

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