Last week the University of Michigan’s consumer confidence survey was under scrutiny due to the way it was released. Seems they’ve been tracking the trading activity right before the survey is released a bit more carefully these days. Thomson-Reuters, which posts the survey on its website at 10am EST, releases it to its high paying clients, like CNBC, 5 minutes before it is posted on the website. However, it was publicized that they also release the reports 2 seconds earlier to elite, high-paying clients via an “ultra low-latency” feed.
Seems the huge volume spike in the second right before the 9:55am EST release caught someone’s eye this time around. All of us who have been trading for any length of time have seen this over and over. There’s a “they’ out there moving the market right at the release of these reports and positioning themselves before the event. First we’ve caught wind that congress was legally trading on info we didn’t have until an embarrassed Obama put a stop to it. But now this. Another “they.”
In the May release of the consumer confidence report, the SPY jumped from $165.90 to more than $166.06 in the first 100 milliseconds. 10 seconds later, $100 million dollars changed hands. How can you trade that fast? The story is coded on the high speed line so that proprietary trading black boxes read the coding and make a decision in under 10 milliseconds. Not a bad day trading strategy. One trade a month and you’re kinda set.
But is this wrong? What is the difference between trading on this 2 second advance and receiving an advance report of a company’s earnings from an employee of the corporation? Let’s think about that. All “inside” information eventually makes it outside, and becomes public. A company’s earnings report is “inside” until it is released to the public. Before it is released, trading on it is a no-no because the rest of the public doesn’t have access to it. Sooooo, isn’t it the uniform time of the release of the information that makes it legit to trade on? As long don’t get it before everyone else does its legal.
So, even if Thomson-Reuters is the one contracting the study, do they have a right to release it early to these elite clients to profit from? Do the elite clients have a right to trade on that market-moving info if they are receiving it before the public? Even by 2 seconds? Traders have gone to jail for less…
No matter how you answer the question the real victims of all of this are legitimate traders and investors who are pre-empted by these 2 seconds. Not because they lose money, but because events like these repel investors from the market and invite regulation that will decrease liquidity.