  We present evidence from Beppo-SAX and XMM-Newton of extreme X-ray
variability in the high luminosity radio-quiet quasar PDS 456, the most
luminous known AGN at z<0.3. Repeated X-ray flaring is found in PDS 456, over
the duration of the 340 ksec long Beppo-SAX observation. The X-ray flux doubles
in just 30 ksec, whilst the total energy output of the flaring events is as
high as 10^51 erg. Under the assumption of isotropic emission at the Eddington
limit, this implies that the size of the X-ray emitting region in PDS 456 is
less than 3 Schwarzschild radii, for a 10^9 solar mass black hole. From the
rates of change of luminosity observed during the X-ray flares, we calculate
lower limits for the radiative efficiency between 0.06 and 0.41, implying that
accretion onto a Kerr black hole is likely in PDS 456. We suggest that the
rapid variability is from X-ray flares produced through magnetic reconnection
above the disc and calculate that the energetics and timescale of the flares
are plausible if the quasar is accreting near to the maximum Eddington rate. A
similar mechanism may account for the extreme rapid X-ray variability observed
in many Narrow Line Seyfert 1s. In the case of PDS 456, we show that the X-ray
flaring could be reproduced through a self-induced cascade of about 1000
individual flares over a timescale of the order 1 day.
