High Speed Traders Allowed To Start Before the Flag

(Community Matters) from Politico Playbook:

SAUSAGE-MAKING – WSJ A1, “Traders Pay for an Early Peek at Key Data,” by Brody Mullins, Michael Rothfeld, Tom McGinty and Jenny Strasburg : “Economic reports from public universities, trade groups and other nongovernmental organizations can move markets as surely as official data from the U.S. government. But unlike government reports, where pains are taken to make certain no one gets them ahead of time, few rules control release of nongovernmental economic reports. Unknown to many investors, selling early access is routine. … Besides the [University of] Michigan consumer-sentiment survey, reports released early to paying customers include a Chicago-based barometer of business activity and a widely followed manufacturing index from the Institute for Supply Management … Other organizations, including trade associations and private research firms, sell data that move industry-specific stocks and futures markets on everything from agriculture to truck sales. …

“Infinium’s chief operating officer, Gregory Eickbush … said Infinium [Capital Management, a high-speed trading firm in Chicago] attributes around 10% of its annual revenue … to using high-speed news and economic-data feeds, in a strategy he called ‘event jumping.’ Trading on such reports, called the ‘news-feed trade,’ is emblematic of an era in financial markets dominated by hair-trigger trading measured in fractions of seconds. At its speediest, this means trading by algorithms based on what is known as ‘machine-readable news.’ …

“The early look at the [Michigan] consumer-sentiment findings comes from Thomson Reuters Corp. The company will pay the University of Michigan $1.1 million this year for rights to distribute the findings … Thomson Reuters’s marketing materials say the firm offers paying clients an ‘exclusive 2-second advanced feed of results…designed specifically for algorithmic trading.’ Clients who pay a subscription fee to Thomson Reuters, which for some is $5,000 a month plus a $1,025 monthly connection charge, get the high-speed feed at 9:54:58 a.m. Eastern time. Those who pay for Thomson Reuters’s regular news services get the report two seconds later. … Five minutes later, at 10 a.m., the university posts the numbers on its website.” Free in Google; type in headline http://on.wsj.com/11b8ypw

–Quartz’s Simone Foxman wrote about this on June 5, “The 15-millisecond head start that led to $28 million in trades”: If you’re a high-frequency trader, a few milliseconds is a big deal.” The piece quotes a Thomson Reuters statement to CNBC: “We have identified that there was a minor clock synchronization issue … causing this data to be released 15 milliseconds early.” http://bit.ly/11b6WMx

–On June 10, Foxman reported that some early numbers are intentional, posting part of a contract between Thomson Reuters and the University of Michigan that says: “Thomson Reuters will send out the Data to Subscribers of its ultra-low latency distribution platform for purposes of algorithimic trading at approximately 9:54:58.000 (plus/minus 500 milliseconds). … Thomas Reuters shall have the right to release the Data to its general Subscribers … on or after 9:55:00.”

Foxman reported: “The consumer sentiment index is at the center of a lawsuit between Thomson Reuters and Mark Rosenblum, a former employee who sold financial data for the firm. Rosenblum says that while working at Thomson Reuters he spoke to officials at the FBI about the two-tiered data distribution system, because he believed that giving high-frequency traders a head start might violate insider-trading laws. He was fired on August 3, 2012, and in April, he took the company to court for wrongful dismissal.” http://bit.ly/19tigbl

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