Hacking The Trading Floor

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Gyan Chawdhary

Hacking The Trading Floor

Session ID: HT2-304Session Classification:

Intermediate


Agenda

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BRIEF HISTORY OF ECONOMIC HACKS

APPLICATION ISSUES

FIX ATTACKS


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Brief History of Economic Hacks


Brief History Of Security Compromises in the Banking Sector

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More Recently … (2008-2010)

Sergey Aleynikov, former Goldman Sachs computer programmer/prop trader indicted and prosecuted on charges of HFT algorithm theft.

UBS filed a lawsuit against three former quants alleging to have stolen proprietary algorithmic trading software with the intent of using it at their new employer.

Ukrainian hacker Oleksandr Dorozhko charged for insider trading by SEC. Mr Dorozhko traded option contracts on information gained by accessing earnings data from a staging server prior to their release date.

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Even More Recently … (Dec 2010 - Jan 2011)

Romanian Registry (Carbon Trading Platform) 1.6 million CO2 certificated from Holcim

Cement account were stolen. Credits were transferred to hacker controlled accounts in EU states.

Czech / Austrian Registry (Carbon Trading Platform) Two million credits worth 2.8 million were

stolen and transferred to other registries and / or sold to other market participants.

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Even More Recently … (Dec 2010 - Jan 2011)

NASDAQ Director’s Desk Application Currently being investigated for a potential

breach, the Directors Desk application is an EMS application that allows executives to share sensitive documents including earnings data, board minutes etc.

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Common Theme / Trends

Attackers are still leveraging the low hanging fruit in terms of security issues used to compromise these systems.

As of 2011, the threats are increasing both in scale and sophistication.

Outsider threat is increasing

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Application Security


Case Studies

Trade Optimized Strategy Engine Issues OTC Trading Platforms Issues Thick Client Trading Platforms Issues Reconciliation Platform Issues Indices Application Insecurities Computational Grid Attacks

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Trade Optimized Strategy Engine

WHAT Class of applications used for submission and

analysis of investment/trading strategies.

WHO Used mainly by Funds/Banks/Investment

Management firms employing Global Macro/Event driven trading strategies

HOW Third party Brokers, Analysts, Economists access the

application to upload trading strategies/ideas. The application uses both statistical and/or

proprietary algorithms to index/rate submitted strategies

Traders trade the most optimum strategy 11


Case Study - Trade Optimized Strategy Engine Issues (Weak Input Validation)

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Problems

Infrastructure Issues Application Issues

Governance

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OTC Trading Platforms

WHAT Predominantly dealer applications for trading over-

the-counter derivatives.

WHO Used by almost all banks dealing in credit derivatives

markets - CDO, CDS, IRS etc Mainly used for structuring instruments, based on

client requirements which are then traded directly or through a dealer.

Mainly used by front office quants/traders

HOW Trades are executed using commercial and/or

bespoke platforms etc Post Trade processing can be carried in-house or

outsourced. 14


Case Study – Bank OTC Trading Platform Issues (Trade Data / Client Discovery Attack)

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Problems

Application Issues

Governance

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Thick Client Trading Platforms

WHAT Any front, middle or back office trading

application. Often developed for business/analyst staff

and/or used to extend trading services to third-party clients.

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Case Study - Thick Client Trading Platform Issues (Forex Broker-Dealer Application)

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Problems

Application Issues

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Case Study - Reconciliation Platform Issues


Indices Applications

Definition Index - A basket/collection/group of securities

to track the performance of a market/sector/asset.

Can be traded as Futures/Options contracts or used as the underlying for other products.

WHO Mostly developed and managed by Exchanges,

Rating agencies and Banks.

HOW A committee or bespoke methods /

benchmarks are used to rebalance indices. 21


Case Study - Index Rebalancing/Turnover Attacks

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Computational Grids

WHAT High performance computing grids used for

running solvers, simulations and analysis of financial time series data. (Monitcarlo, Volatility, OP etc)

WHO Mostly institutions and departments involved

with financial modeling. Users tend to be quants, traders and analysts.

HOW Models are submitted to the grid environment

using Web services, custom APIs and/or remote access.

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Case Study - Computational Grid Attacks


Problems

Infrastructure Issues Application Issues

.

Governance

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FIX Protocol Weaknesses


What is FIX Protocol ?

The Financial Information eXchange (FIX) protocol is an electronic communications protocol initiated in 1992 for international real-time exchange of information related to the securities transactions and markets – Wikipeda

In other words, the protocol facilitates the buying and selling of securities electronically.

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Who Uses FIX

FIX is widely used by both the buy side (institutions) as well as the sell side (brokers/dealers) in the financial markets.

Amongst its users are hedge funds, mutual funds, investment banks, brokers and stock exchanges

Transaction types supported: Pretty much all asset classes i.e Equities, Bond, Derivatives and Forex.

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Who Uses FIX

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Why Investigate FIX ?

FIX security is often overlooked in favor of Operating System and Host Security

To demonstrate that FIX based front running is possible and not difficult to exploit

To identify mitigating factors and strategies for some of the existing issues within FIX protocol

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Algorithmic Trading Architecture

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High Frequency Trading Architecture

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Order Front Running (Demo)

Demo Environment: Algorithmic Trading Environment – A simulated

algorithmic/high frequency trading environment

Brokerage Account – Hacker Controlled brokerage account to reply orders.

Order Sniffer - Note

The following examples used during this demonstration are not intended to suggest any insecurities or weaknesses in the third party applications and are only to be seen as a case study to demonstrate FIX protocol insecurities.

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Algorithmic Trading Environment

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Brokerage Account

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Order Front Running

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1

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LibPcap FIX Sniffing (Slow)

symbol = re.compile('55=[A-Z]*') # Symbol (APPL, GOOG .. )

buy = re.compile('54=1') # BUY Order

sell = re.compile('54=2') # SELL Order

order_qty = re.compile('38=[0-9]*') # Order quantity

price = re.compile('44=[0-9]*') # Equity Price

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Fix Virus

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Cont

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Binary Tree _

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Fast FIX walker (C++)

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Order Builder

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Hedgefund Example - Weak Wifi + FIX sniffer

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IbPy Server Side Code - Contract Builder

def build_stock_contract(symbol, quantity, oid):

stock.m_symbol = symbol

stock.m_secType = 'STK'

stock.m_exchange = 'SMART'

stock.m_currency = 'USD'

Order.m_orderId = oid

Order.m_clientId = 0

Order.m_permid = 0

Order.m_action = 'BUY'

Order.m_lmtPrice = 0

Order.m_auxPrice = 0

Order.m_tif = 'DAY'

Order.m_transmit = False

Order.m_orderType = 'MKT'

Order.m_totalQuantity = quantit

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Order Sniffer (Excel plugin) – order encoding

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Hacking The Trading Floor