Hedge funds lose 2-second edge on econ report; Reuters agreed to end its practice of giving high-frequency traders an early look at potentially market-moving consumer survey results that could mean millions of dollars in profits

Hedge funds lose 2-second edge on econ report

Kevin McCoy, USA TODAY11:45 a.m. EDT July 8, 2013

STORY HIGHLIGHTS

Results from consumer surveys will no longer go early to high-frequency traders

High-speed computers are able to make trades within the two-second gap

Reports also not being distributed early to news organizations

Financial information giant Thomson Reuters Monday agreed to end its practice of giving high-frequency traders an early look at potentially market-moving consumer survey results that could mean millions of dollars in profits. Changing the policy amid an investigation by New York Attorney General Eric Schneiderman, the company said it would no longer provide early access of the University of Michigan consumer survey findings issued every other Friday at 9:55 a.m ET. Financial information giant Thomson Reuters Monday agreed to end its practice of giving high-frequency traders an early look at potentially market-moving consumer survey results that could mean millions of dollars in profits.Changing the policy amid an investigation by New York Attorney General Eric Schneiderman, the company said it would no longer provide early access of the University of Michigan consumer survey findings issued every other Friday at 9:55 a.m ET.

The survey is one of the most closely watched indicators of U.S. consumer sentiment. Thomson Reuters pays the university for the right to provide exclusive distribution of the data to its financial customers. However, a group of high-frequency traders, capable of placing thousands of buy and sell orders at lightning speeds, paid Thomson Reuters extra to get the survey results two seconds in advance of other market participants.

The two-second head start enabled the high-frequency traders to execute trading bets based on the survey results before other market participants could react. The edge represented a key to potentially millions of dollars in profits at the expense of traders who got the survey results at the normal release time.

“Promoting fairness and avoiding distortions in the securities markets is an important focus of this office,” Schneiderman said in a statement Monday. “The securities markets should be a level playing field for all investors and the early release of market-moving data undermines fair play in the markets.”

Schneiderman also said his office was continuing its investigation, which was first reported by The New York Times.

Thomson Reuters said it would simultaneously release the survey results to all its financial clients at 9:55 a.m. effective Friday, July 12. Distribution of the data to all others will continue to take place at approximately 10 a.m. by press release, the company said.

“Thomson Reuters strongly believes that news and information companies can legally distribute non-governmental data and exclusive news through services provided to fee-paying subscribers,” the company said in a formal statement. “It is widely understood that news and information companies compete for exclusive news and differentiated content to help their customers make better informed trading and investment decisions. Thomson Reuters remains committed to being open and transparent about how it releases proprietary data.”

Company spokesman Lemuel Brewster said that financial markets “have always been about the fastest access to exclusive and differentiated content,” and added that Thomson Reuters had “always been open and transparent about how we release our proprietary data.”

An industry-wide debate about release practices of private, non-governmental data that can move markets “needs to be done in consultation with the market,” said Brewster.

That twice-monthly survey is separate from the consumer confidence index produced by the private research group the Conference Board.

Last month, the research group announced it would no longer provide its economic reports in advance to news organizations because it suspected the data was being diverted early to computer-driven trading systems, which can unfairly profit from it.

The Conference Board had long provided its monthly data to reporters 30 minutes before the information was publicly released. That early access allowed journalists to prepare news reports ahead of the information’s public release.

Last year, the Labor Department revoked early access to its employment data for several companies that deliver data to high-speed traders but produce little or no original news content.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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