The Fear Index

screens to examine the trades that it was putting on. They were being processed at ultra-high frequency in tremendous volumes – millions of shares all held for only fractions of a second – a strategy known as ‘sniping’ or ‘sniffing’: submitting and instantly cancelling orders, probing the markets for hidden pockets of liquidity. But he had never seen it done on such a scale before. There could be little or no profit in it and he wondered briefly what VIXAL was aiming to achieve. Then an alert flashed on to the screen.

    IT WAS APPEARING at that instant in dealing rooms all across the world – 8.30 p.m. in Geneva, 2.30 p.m. in New York, 1.30 p.m. in Chicago:

The CBOE has declared Self Help against the NYSE/ARCA as of 1.30 CT. The NYSE/ARCA is out of NBBO and unavailable for linkage. All CBOE systems are running normally .

    The jargon masked the scale of the problem, took the heat out of it, as jargon is designed to do. But Hoffmann knew exactly what it meant. The CBOE is the Chicago Board Options Exchange, which trades around one billion contracts a year in options on companies, indices and tradable funds – the VIX among them. ‘Self Help’ is what one US exchange is entitled to declare against another if its sister-exchange starts taking more than a one-second time period to respond to orders: it is the responsibility of each exchange in the United States to ensure that they don’t ‘deal through’ – that is, offer a worse price to an investor than can be obtained at that precise moment on an exchange elsewhere in the country. The system is entirely automated and operates at a speed of thousandths of a second. To a professional such as Hoffmann, the CBOE Self Help alert gave warning that the New York electronic exchange ARCA was experiencing some kind of system breakdown – an interruption sufficiently serious that Chicago would no longer re-route orders to it under the National Best Bid and Offer (NBBO) regulations, even if it was offering better prices for investors than Chicago.
    The announcement had two immediate consequences. It meant Chicago had to step in and provide the liquidity formerly offered by NYSE/ARCA – at a time when liquidity was, in any case, in short supply – and it also, perhaps more importantly, further spooked an already jittery market.
    When Hoffmann saw the alert, he didn’t immediately connect it with VIXAL. But when he looked up in puzzlement from the screen and ran his eye over the flickering lights of the CPUs; when he sensed, almost physically, the phenomenal volume and speed of the orders they were processing; and when he remembered the immense unhedged one-way bet VIXAL was taking on a market collapse – at that moment he saw what the algorithm was doing.
    He searched around the console for the remotes for the TV screens. The business channels flickered on at once, broadcasting live pictures of rioters fighting police in a big city square in semi-darkness. Piles of garbage were on fire; occasional off-camera explosions punctuated the chatter of the commentators. On CNBC the caption read: ‘BREAKING NEWS: PROTESTERS SWARM STREETS IN ATHENS AFTER APPROVAL OF AUSTERITY BILL’.
    The female presenter said, ‘You can see police actually hitting people with batons there …’
    The ticker in the bottom of the screen showed that the Dow was down 260 points.
    The motherboards churned on implacably. Hoffmann set off back towards the loading bay.

    AT THAT MOMENT a noisy cortège of eight patrol cars of the Geneva Police Department swept down the deserted Route de Clerval, slammed to a halt beside the perimeter of the processing facility, and sprouted along its length a dozen open doors. Leclerc was in the first car with Quarry. Genoud was in the second. Gabrielle was four cars back.
    Leclerc’s immediate impression as he hauled himself out of the back seat was that the place was a fortress. He took in the high heavy metal fence, the razor wire, the surveillance cameras, the no-man’s-land of the car park and then the sheer steel walls of the structure itself, rising like a silvery castle keep in the fading light. It had to be at least fifteen metres high. Behind him armed police were disgorging from the patrol cars, some with Kevlar body armour or blast-proof shields – pumped up, ready to go. Leclerc could see that if he were not very careful, this could only end one way.
    ‘He isn’t armed,’ he said as he passed among the deploying men, clutching a