Rogue Code (10 page)

“Let’s hope so.”

Iyers suppressed his immediate response. Instead he said, “So what did you tell Stenton?”

“Just what I told you.”

“Did he believe you?”

Campos nodded. “Sure. Why not? I don’t think I’m the only one he talked to about this, and no one had any luck, from what I heard. That’s when I asked him about those two guys.”

The men sat without comment; then Iyers said, “So what do we do? From what you say, we need to neutralize Aiken and Renkin. If you don’t want me doing it the easy way, I’m open to suggestions, but I still think you need to take this to your boss.”

“I don’t have a boss. Just drop it.”

“If you say so.”

Neither spoke for some minutes. Iyers finished his drink and gestured at the waitress for two more. Campos looked deep in thought. The blonde at the bar laughed in triumph. The chubby guy at the table grimaced and set his phone down. The place was getting very noisy.

After the drinks arrived, Iyers said, “I haven’t seen any real money yet.” This was his recurring complaint. Campos had given him less than $100,000 so far.

“It’s cooling off. I told you. We agreed.”

Iyers shrugged. “I’m just saying.” He looked around the room. “You know,” he continued, “I have the feeling that time is running out on us, and a whole lot faster than you talked about. I haven’t taken these chances for what little I’ve seen so far. Just so you know.”

“You may be right about time. I’ll get back to you on how we’ll proceed.” Iyers smirked but didn’t say what he was thinking. After a long pause, Campos said, “Can you insert Carnaval without any bells going off?”

Iyers pursed his lips. “I don’t know why not.”

“No shortcuts.”

“Enough of that. I told you at the time why I had to do it that way. There’s nothing I can do about it now. If we make any changes at this point, they’ll spot it and know for a fact something’s up.”

“Yeah. I get it.” Campos picked up his second drink.

“I don’t like these two guys working in the system,” Iyers said.

“I don’t either.” Campos set his drink down and looked off to the side, still not answering the implied question. And in that gesture and silence, Iyers got the unstated message.

He grinned and extended his hand. He touched Campos’s forearm in reassurance. “No problems, amigo. No problems. I’ll take care of it.”

DAY THREE

WEDNESDAY, SEPTEMBER 12

THE IPO HIGH-FREQUENCY TRADERS DESTROYED

Commentary

September 12, 11:30 A.M.

Palo Alto
—Every IPO contains risk. It’s an axiom of the stock market, yet time after time, financial experts behave as if each IPO is a guaranteed win for all concerned. For evidence of the inherent risk, you need look no further than the IPO for the well-regarded, high-frequency trader BATS Global Markets, Inc., in 2012.

No company appeared better prepared to launch an IPO. BATS was at the time the third-biggest U.S. stock exchange company and was a highly respected, innovative player in high-frequency trading. It was seeking an infusion of capital through its IPO to better compete with NASDAQ and the New York Stock Exchange. Since it ran its own exchange, it elected to handle the IPO itself. Everything was set for what was expected to be a highly profitable day. Instead, the stock opened just below the projected IPO price of sixteen dollars, and then continued falling as high-frequency traders came on board.

Within minutes of offering its stock, BATS announced it was having “system issues” with its own IPO. Ironically BATS stands for “better alternative trading system.” To everyone’s surprise, the company’s software was unable to accurately display ticker symbols for a wide range of stocks. Then a single trade for just 100 Apple shares executed by BATS drove the stock down more than 9 percent. The Apple stock quickly recovered, but confidence in the ability of BATS to handle trades did not.

A high-profile public offering by such a well-known company draws keen media and public interest. Yet too often in recent years there have been significant problems with them. These problems have often been complex and buried within the vast software used to control the offering. As a consequence, what went wrong is often never adequately identified or fully grasped.

These new trading problems are the product of computers, and while computing power has increased efficiency and profits, it has also brought with it new issues that are still not entirely comprehended. The reality is that no one really understands the complex software. All major companies now have board-level risk committees charged with assessing what is taking place and alerting the company to what it needs to do. Yet time and again, the measures taken to prevent the problem BATS experienced have, upon examination, been found to have caused them, or at the least have proved inadequate in stopping them. The consequence has been the notorious Flash Crash and serious glitches in the Facebook IPO.

BATS had been an expert at IPOs, and yet it fell victim to its own bad software and predatory HFTs that sold the stock short once their algos sniffed blood. Its stock fell to pennies by the time the company abandoned the IPO, which was immediately deemed the worst of all time. BATS has announced no date for its next attempt.

HFTs tend to lurk offshore. No one knows how many there are or how vast their holdings. Their ability to manipulate the market is coming under increased scrutiny. In some instances, their motives have even been questioned, as it is not clear who controls them.

But for now, BATS remains the first IPO killed by HFTs.

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International PC Review

13

EDIFÍCIO REPÚBLICA

RUA SÃO BENTO

SÃO PAULO, BRAZIL

9:23
A.M.

Victor Bandeira climbed into his taxi helicopter, gave Sergio, the pilot, a nod, and then sat back in his comfortable seat. Almost at once, the blades whirred and the agile craft lifted from the helipad atop the towering building. Sergio was one of the old guard, a foot soldier and bodyguard he’d relied on for years. He’d had him trained to serve as his pilot, not wanting to rely on outsiders.

Bandeira adjusted his charcoal gray Armani suit and checked his watch. Though he adhered to the Latin custom of tardiness, especially when it was he who had called the meeting, he did not take it to extremes.

The city skyline was spiked with gleaming glass towers, symbols of the new Brazil and its regional economic dominance. After five centuries, the nation was at last assuming a significant place in the world. Brazil had always been the land of destiny, filled with promise and expectation but falling short time and again, sinking into a morass of corruption and failure.

There’d been frenzied eras of economic boom before, first made possible by sugar, later by coca, then by rubber. Each had brought enormous wealth into the country and made a handful of families very rich. But this boom-and-bust cycle, always dictated by circumstances outside the country, had never solidified into sustained growth or elevated Brazil to world power status.

Now all that was changing. Over recent decades, the government had instituted initiatives to give the economy greater balance, and with the development of a vast oil reserve just off the coast, a measure of sustained prosperity at last seemed possible. Bandeira was not a patriot, but all these changes meant opportunity, and if nothing else, he considered himself a man who knew opportunity when he saw it.

He took in the smog-shrouded skyline as the helicopter weaved its way among the towers. He counted a dozen other air taxis exactly like his own. At any time, there were as many as five hundred of them plying the busy skies over this city of twenty million. He looked through the brown blanket of smog beneath to the traffic-clogged streets even farther below. More than six million cars were crammed into those congested streets. He’d be two hours getting to his meeting down there. In the air, the trip took less than ten minutes. So it was that the rich and influential moved about São Paulo, flying above the masses like demigods.

But convenience and efficiency weren’t the only reasons for the sky taxis. The sky was safer than taking the streets. Kidnapping was a cottage industry in the largest and richest South American city. More than one acquaintance and countless others Bandeira knew by reputation, men who had taken great measures to ensure their safety, had been seized off the street and held for ransom. If the kidnappers misjudged and asked for too much, if the family or business moved too slowly, or sometimes just to make an early point, an ear of the victim was hacked off and mailed.

So common was the loss of an ear among the rich that more than one local surgeon specialized in its reconstruction, extracting naturally formed cartilage from within the victim’s body and from it creating a replacement. True, the new one was hard and unyielding but it looked like the real thing even on close examination. The daughter of one of his colleagues wore such an ear while two young men of his employ took another approach, proudly displaying the space where the ear had been shorn, testament that they’d been taken and survived the ordeal.

One of Bandeira’s rare failures had been in his effort to control the local kidnapping trade. In his view, it was out of hand, targeting those it should not, giving the city a reputation for violence and danger that was not good for business. Bandeira had long planned to bring kidnappings under the control of his gang, Nosso Lugar, “Our Place,” or NL as it was known. But the other gangs,
quadrilhas,
engaged in kidnapping were too disorganized, too impulsive to be brought in hand. They viewed Bandeira with the same distrust with which they saw the official authorities.

After several futile efforts, Bandeira had called a halt to his attempt—for now. He’d concluded that consolidating the gangs and bringing them under his control was possible only through a sustained violent effort. These thugs understood death. The consequence was that a significant number of them would have to be killed. The other approach was to kidnap members of their families, cut off a few ears, make demands. Only then would they begin to see the light.

Bandeira had discussed this approach over lunch with the regional police and military commanders, two men with whom he’d worked for decades. The three of them had talked it through at length, and they’d agreed it could be done. And they were prepared to let Bandeira do it, providing cover as needed. If one gang was preying on another, it was possible that the media would accept it as a positive outcome and for once divert attention from law enforcement’s own failure. But both men had cautioned that only a sustained campaign of terror and violence could succeed. In the end, the gangs would have to be brought to heel. These were vicious men who lived violent lives, so nothing less than absolute dominance would work. A half effort would only bring on a war of greater ferocity, which they did not want.

“What we need,” the city chief of police had said through his cigar smoke, “is a period of civil unrest. A time of street demonstrations, assassinations, vendettas, and murders to serve as cover for your operation. Who would know? And when all was over, you’d be in control.”

The general smiled. “This is Brazil. We all know such a time is inevitable. If I were you, I’d plan accordingly. You can count on us,” he’d said reassuringly.

So the plan was in place. The police and army fed information to NL every week, and one of Bandeira’s trusted captains kept the plan updated with names and addresses. When the time came, Bandeira’s organization would act. The consequence would be an end to random kidnappings and the return of greater safety to the streets. Targeted kidnappings would become the norm, quiet ones that would still be lucrative. The wealthy of the city could breathe a little easier, and foreign investment would not be so timid.

Bandeira contemplated the numerous ways he’d profit with a sense of satisfaction. The helicopter banked, righted, then began a gentle approach toward the round landing pad atop the gleaming Banco do Novo Brasil building. Bankers, Bandeira thought as he mentally reviewed that morning’s agenda, they should all be shot.

14

MULBERRY STREET

NEW YORK CITY

11:33
A.M.

Now that Jeff and Frank had penetrated the NYSE engines and had free access to the core of the trading processes, they were in the final phase of their engagement. They continued employing the specialized tools that Jeff had devised over the years and which he guarded closely. They were the key to what he did and made his work not only less tedious but also more effective. The hardest part of the decision in hiring an outsider, even a friend like Frank, was granting access to these jewels.

He had other tools, which he made commonly available at his presentations in order to spread his brand and facilitate better computer security. They were accordingly closely identified with his name and that of his company.

At this point, the pair was mapping the extent of their success while also searching for other ways and paths to more deeply penetrate the system’s cyberdefenses. Having succeeded at their primary task, they took a more leisurely pace now, less intense. The pentest was essentially complete; what they did now was icing on the cake.

Jeff could simply have informed Stenton of their success, but he had a reputation for going a step further and typically did something harmless to the system that persuaded even the most dubious company executive that he’d accomplished what he said he had. He reviewed things he’d done in the past, wanting to pull something clever and distinctive from his bag of tricks. He decided to ask Frank for ideas.

Taking an early lunch, they’d stretched their legs and walked up to Chinatown. After selecting a restaurant at random, they sat in as quiet a corner as was possible in Manhattan at midmorning.