Here’s what I saw on CNBC a week or so back:
A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release. (Source: CNBC)
Happy to know that my confidence as a consumer can be put to work, for a small fee that – alas – doesn’t go to me, to help goose the investor confidence of the folks willing to pay to get them some edge. Glad to do my part, fellows.
Here’s how it works:
The University of Michigan gathers this data, and provides it to Thomson Reuters to distribute to the general public. But five minutes before the great unwashed get to hear whether they’re smiley face or Debby Downer about the economy, “headline numbers” are given out to paying clients. That, in itself, is no surprise and, as unsavory as it may sound – especially to those of us who do so enjoy taking umbrage - no big deal. This is not government-collected data. It’s data gathered by a university, which can afford to do the collecting because Thomson Reuters is paying for it.
So, while it’s my consumer sentiment that “they” are consuming (and exploiting), it’s really just paid research.
I guess you could argue that the University of Michigan is a public institution, but that’s for the folks in Michigan to argue.
Anyway, the real rub isn’t that the rest of us slobs have to stand behind the paying customers to get the data that will change the course of mighty rivers and bend steel in its bare hands as it impacts the market.
The real rub for the paying customers is that, a few ticks before they get their mitts on the data:
…an even more elite group of clients, who subscribe to the "ultra-low latency distribution platform," or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.
Which, of course, gives the computer-driven elite plenty enough time to get in whatever market-moving trades their little low-latency hearts desire.
All of this has been disclosed. Thomson Reuters released a statement that read, in part:
Details of the tiered release of this data are provided openly to Thomson Reuters customers and the wider public and anyone wishing to trade on this data can pay for the service that best meets their data needs."
But apparently some of the paying customers were not aware that, while we the people were, metaphorically, sitting cheek to jowl in coach fighting over a bag of peanuts, and they were a bit more comfy-cozy getting free drinks and plastic food in business, there were, unbeknownst to them, first class travelers sipping Perrier Jouet and eating real food off of china plates. In less metaphorical terms, they weren’t clued in that what they were getting might not be “the service that best meets their data needs.”
"I worry that there's both a fairness and a disclosure issue," said former Securities and Exchange Commission Chairman Harvey Pitt. "If I'm paying a lot of money, I should know whether I have the best deal possible. If there was no disclosure of the tiered structure, that would be a serious problem."
Well, tut tut, Harvey. Thomson Reuters does tell all:
To demonstrate that it disclosed the existence of a two-second lead time, Thomson Reuters sent CNBC a link to a Webpage of marketing material detailing the system.
“Marketing material?” LOL to that!
There, the firm cited a major market move on Aug. 12, 2011, in which U.S. stocks slipped after consumer sentiment data was released. "Thomson Reuters News Feed Direct customers benefited from the 2-second advance and the fastest delivery in the market," the site said.
Of course, Thomson Reuters doesn’t really want everyone to read their marketing material. Because if everyone bought into News Feed Direct, pop goes the 2-second advantage. Sure, paying customers would still have benefited over nonpayers. What else is new? But the advantage wouldn’t have been quite so great.
The firm explained that this disclosure can be found on the "Machine Readable News" product page of its Website, under a drop-down menu for "suite components."
Despite the terrible design of so many web sites, most companies actually do want you to be able to find product information. But just how many of the five-minute before subscribers had looked under that drop-down menu of “suite components” and found that the sweet deal was going to those who signed on for the two-second component.
Several economists contacted by CNBC said they were unaware that the data are released to the elite group two seconds before the 9:55 conference call. One called the release "disingenuous," another called it "unfair."
Thomson Reuters did not respond to a request for comment on those economists' remarks.
If market advantage accrues to those who do the research, or pay for the research, so be it.
And although this is my confidence as a consumer we’re talking about here, in this case, it’s not the government collecting the data. If the Bureau of Labor Statistics or other government entities started selling market-moving data – or slipping it to friends and family - that would be truly heinous. And “accidents” do happen. A few weeks ago, there may have been some slippage as there was “a burst of trading about a half second before release of the Department of Labor's highly scrutinized monthly jobs data, which often set the tone for market trading all day. It remains unclear what caused that spike in trading.” (Where was Edward Snowden that day?)
But in the case of the Thomson Reuters information, this is data that’s being privately paid for – no different than analyst reports, etc. If I want the information, I can collect it myself, or pay someone else to go door to door for me.
Still, it’s hard not to believe that there are at least a couple of disgruntled Thomson Reuters customers on the horn to their sales rep, wanting to know why they weren’t offered the opportunity to buy into the two-second elite.
Here they were, feeling pretty chummy about getting that info five minutes early so they could make some coin before the slow pokes with their thin wallets hit the market, and all along they were getting chumped by an even more elite elite.