Buffett’s Business Wire ends feeds to high-speed traders

February 20, 2014 11:38 pm

Buffett’s Business Wire ends feeds to high-speed traders

By Stephen Foley, Kara Scannell and Arash Massoudi in New York

Business Wire, which has published corporate news releases in the US for the last half century, will stop selling direct feeds to high-speed traders, amid concerns that the practice gives the firms an unfair advantage over other investors.

Warren Buffett, whose conglomerate Berkshire Hathaway owns Business Wire, stepped in personally to examine the direct sales, fearing that recent publicity around the practice could hurt the company’s reputation.

Business Wire had also been in talks with Eric Schneiderman, New York attorney-general, whose office is investigating the distribution of financial data to see if high-frequency trading (HFT) firms are finding ways to jump ahead of other investors.

In an era of computer-driven trading and superfast communications, a split-second advantage in receiving data can open an opportunity to profit from the market moves that may happen when other players receive the information.

In the case of corporate earnings statements scheduled for release after the end of the trading day, a direct line from Business Wire meant some firms were able to trade ahead of the market’s official close, according to the research firm Nanex.

Most investors access Business Wire releases through an intermediary data service, such as Bloomberg or Dow Jones. The Wall Street Journal, a subsidiary of Dow Jones, published a story highlighting Business Wire’s direct sales to HFT firms on February 6.

“These traders had absolutely no time advantage in receiving material news from Business Wire, which operates a patented internet delivery network that disseminates news simultaneously and in real-time to all market participants,” Cathy Baron Tamraz, Business Wire chief executive, said in a statement on Thursday.

”However, in discussions that have taken place with a few of our clients, we learnt that the article may have caused some misperceptions, and that was of deep concern to us.”

Ms Baron Tamraz said the decision to halt the sales was taken “in consultation” with Mr Buffett.

The sales were not illegal or in contravention of regulations on market fairness, she said.

The market still has a problem. It is not closing at exactly 4pm. Trades bleed over for almost a whole second.

– Eric Hunsader, founder of Nanex

Nanex examined the trading in certain stocks with earnings released at 4pm on behalf of T Rowe Price, a fund manager that became suspicious.

Eric Hunsader, founder of Nanex, said: “The market still has a problem. It is not closing at exactly 4pm. Trades bleed over for almost a whole second and that will affect the close because earnings are getting released at almost exactly 4pm.

“Just because Business Wire has stopped this practice, doesn’t solve the problem. The best solution is to require earnings to not be released until one minute after 4pm.”

Mr Schneiderman had been discussing Business Wire’s data dissemination practices since the company itself raised the issue with his office in October, according to sources familiar with the talks, which were described as informal and cordial.

“Business Wire’s decision to voluntarily step forward and stop selling its clients’ information directly to high-speed traders is a tremendous victory for our effort to eliminate advance trading on market-moving information and a demonstration of Business Wire’s commitment to being a responsible industry leader,” he said.

The attorney-general has labelled some HFT practices as “Insider Trading 2.0”.

Following his intervention last year, Thomson Reuters, the media and financial data provider, stopped its practice of releasing a consumer confidence survey created with the University of Michigan two seconds early to traders willing to pay extra to obtain it.

 

Business Wire Halts Direct Feeds to High-Speed Traders

Business Wire, the distributor of press releases owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), will stop letting high-speed trading firms purchase direct access to its service.

After consulting with Buffett, a billionaire known for holding onto investments for decades, Business Wire decided to avoid the reputational hit from an association with high-frequency traders, who often enter and exit positions in less than a second.

“There was nothing wrong in Business Wire serving these handful of HFTs directly,” Chief Executive Officer Cathy Baron Tamraz said today in a statement. A Wall Street Journal article this month highlighted the access Business Wire granted some traders. “The article may have caused some misperceptions, and that was of deep concern to us,” she said. “Our most important assets are our reputation and the trust we have earned from our clients and other market participants for more than a half century.”

By directly subscribing to Business Wire’s stream of potentially market-moving corporate statements, traders could shave thousandths of a second off the amount of time it took to receive and process the information in corporate press releases, including earnings and merger announcements. Without that option, the fastest traders will have to rely on middlemen such as Bloomberg News parent Bloomberg LP, Thomson Reuters Corp. (TRI) and News Corp.’s Dow Jones to get the quickest access to company announcements.

‘Tremendous Victory’

The move was welcomed by New York Attorney General Eric Schneiderman. It’s “a tremendous victory for our effort to eliminate advance trading on market-moving information and a demonstration of Business Wire’s commitment to being a responsible industry leader,” he said in a statement.

Berkshire of Omaha, Nebraska, bought Business Wire in 2006. Amazon.com Inc., United Parcel Service Inc. and Goldman Sachs Group Inc. are among corporations that make announcements through Business Wire. UBM Plc (UBM)’s PR Newswire is the other major U.S. press-release service. Bloomberg News distributes statements from both to its customers.

Buffett has previously criticized high-speed traders. Their activity “is not contributing anything to capitalism,” he told CNBC during an interview last year.

Tim Quast, the Denver-based president of ModernNetworks IR, which advises public companies on trading topics, praised Business Wire’s decision.

“If there is the appearance of evil from distributors of news and information, then they ought to take steps to remove that appearance,” he said.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Sam Mamudi in New York atsmamudi@bloomberg.net

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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