The upheaval in financial markets caused by a false report of explosions at the White House was brief, but its effect on traders who have come to rely on Twitter may last quite a bit longer.

Volatile price moves ricocheted through markets for stocks, bonds, currencies and commodities around 1 p.m. EDT (1700 GMT) on Tuesday after a tweet purporting to be from the Associated Press said there had been two explosions at the White House and that President Barack Obama had been injured.

The move in stocks, described by one futures trader as “pure chaos,” briefly wiped out about $140 billion in U.S. market value. When it became clear that the tweet was fake, equities rebounded and more than recovered the losses – the S&P 500 index ended up 1.04 percent.

The episode led some investors and traders to ask whether the increasing domination of high frequency trading means that there is an increasing danger that even highly questionable information can have a more dramatic impact than it ever could in the past.

What jolted investors and traders was the source: The Associated Press, which describes itself as “one of the largest and most trusted sources of independent newsgathering.” The tweet was sent from its “verified” Twitter account.

“If that tweet had come from me, the market would not have crashed 100 points,” said Gautam Dhingra, founder and chief executive of hedge fund High Pointe Capital Management LLC in Chicago. “Being a journalist, you have more credibility. The AP has more credibility being a larger and longer-living organization.”

The benchmark S&P 500 immediately fell about 1 percent before bouncing back. U.S. government debt prices briefly surged and oil and gold markets were also roiled.

The impact quickly started to wear off as traders began to question the veracity of the tweet. Within a few minutes, the AP had told Reuters and other news organizations that the report was “bogus” and the White House confirmed that there had been no explosions and Obama was fine.

But the damage had been done, and it appears to have stirred some soul-searching among traders for whom Twitter has become an important source of information.

The moves echo the May 6, 2010 plunge in markets now known as the “flash crash,” when the Dow industrials dropped more than 600 points, eventually piling up a loss of about 1,000 points, in a few minutes before recovering. The precise causes of that plunge have never been clear.

More than 620,000 front-month S&P 500 E-mini futures contracts – the most popularly traded futures contract – and more than 180,000 front-month 10-year Treasury futures contracts changed hands between 1:09 p.m. and 1:12 p.m. EDT (1709 to 1712 GMT) after the tweet.

“All the phones were lighting up on what had been a very quiet day, and there was shouting from other desks,” said Art Nolan, an interest-rate futures broker who was on CME Group’s Chicago trading floor when the bogus tweet sent stocks reeling.

“All of our customers have every news service, and they had seen the AP print and were calling for confirmation. There was an enormous amount of trading going on in the stocks indexes, and if you are long stocks you could lose three months of your income in a matter of minutes.”

Not everyone reacted, however. Paul Sacks, principal gold trader at Aurum Options Strategies in New York, said liquidity dried up as suspicion of the news grew.

“As soon as (gold) started acting a little weird, I pulled all my bids and offers because I wanted to know why something unusual was going on,” said Sacks.

In recent months, Twitter hoaxes by anonymous users pretending to be prominent market players have sparked declines in the shares of specific companies, though not the entire market.

But the use of social media is expected to continue to grow, not shrink. The U.S. Securities and Exchange Commission said earlier this month that companies can use Twitter, Facebook and other social media to make key announcements, but this latest incident will likely increase investor skepticism about that move.

“It’s important for us to understand what happened and make sure no investors were harmed,” SEC Commissioner Dan Gallagher told Reuters TV.

The SEC’s website has a warning that swindlers can use social media “to appear legitimate, to hide behind anonymity, and to reach many people at low cost.”

“There have always been rumors that circulate impacting the market,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. “It’s not that this is new, but just the fact that it’s so instantaneous now and it’s got such a broad reach. Before it would take a bit of time to circulate the information, but now it’s just like, poof!”

Many called for market regulators to do more.

“Hopefully it wakes up the regulator to take action,” said Eric Hunsader, founder of Nanex, a Winnetka, Illinois-based trading software company that tracks market activity.

Some said such hoaxes may convince traders to take smaller positions during the trading day to minimize potential losses. Traders in the bond futures market said the bid-ask spread widened sharply when the fake tweet went out.

The events come after investors were already on edge after two fatal explosions last week at the Boston Marathon led to a lockdown and manhunt in Boston. One suspect died and another was arrested.

“We see this every time this type of news comes out: Liquidity evaporates quickly,” said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.

“High-frequency traders cancel their orders on even one little tweet. We need other participants to make sure this kind of volatility doesn’t happen and we don’t anymore. The market isn’t built for this kind of market impact. I can’t imagine a 9/11 event in this type of environment.”

(Reuters)