
Studies find fast traders get data from SEC seconds early - william_stranix
http://www.reuters.com/article/2014/10/29/us-markets-sec-traders-idUSKBN0II0DC20141029
======
minimax
Here is the working paper [1] if anyone is more interested in the details. The
gist of it is that there are two ways to get insider transaction reports from
EDGAR. One way is to scrape the EDGAR website (polling), the other is to sign
up for a push service [2] where the filings are sent to you as soon as they
hit EDGAR. You have to pay for the latter service. The paper calls the
scraping solution "public" even though both solutions are open to the public
(though you have to pay for the push service). According to the paper, it
turns out (maybe not so shockingly) that the push service is better than the
scraping/polling solution about half the time. The paper is written by
economists and not technologists, and so there is no mention of CDNs or web
caches a.k.a. the types of things most developers would suspect as being the
most obvious source of the discrepancy.

1\.
[http://online.wsj.com/public/resources/documents/SECDissemin...](http://online.wsj.com/public/resources/documents/SECDissemination.pdf)

2\.
[http://www.sec.gov/info/edgar/ednews/dissemin.htm](http://www.sec.gov/info/edgar/ednews/dissemin.htm)

edit: There is a WSJ article suggesting the price for the push feed is around
$1500 / month.

[http://online.wsj.com/articles/fast-traders-are-getting-
data...](http://online.wsj.com/articles/fast-traders-are-getting-data-from-
sec-seconds-early-1414539997)

~~~
crdoconnor
>You have to pay for the latter service.

There are no public prices and you need to email some company for more
details. With most businesses this means you contact a salesperson who will
play an extended game of "how much you got?" and the pricing AND the level of
service provided will vary widely depending upon your negotiating power.

The dearth of information about this 'product' sold by a 3rd party suggests
something shady is probably going on.

>The paper is written by economists and not technologists, and so there is no
mention of CDNs or web caches

Caching is a pretty poor excuse. Caches can be invalidated. And CDN basically
means caching by another name.

It makes much more sense (both economically and technically) that they simply
crippled the free feed. Especially since it is provided by a private third
party who makes bank on the people who purchase the premium edition.

~~~
apaprocki
You're just making allegations. It says in the contract that the subscription
price is based upon how many subscribers subscribe to the service (they need
to cover their costs of implementing 24/7 support and a help desk). It
probably isn't public, but Google-fu turns up some older information:

[http://contracts.onecle.com/edgar-
online/trw.svc.1998.09.11....](http://contracts.onecle.com/edgar-
online/trw.svc.1998.09.11.shtml)

    
    
        A.   Broadcast Service Subscription Charge
        This charge will be set on October 1, 1998 based on the number of signed
        contracts received by that date. The table below contains a 14-month price at
        various subscription levels:
    
        SUBSCRIBERS AS OF
        OCTOBER 1, 1998                PRICE
                              
        1 to 8                        $152,172
        9 to 15                         92,967
        16 to 25                        55,346
        25+                             42,179

~~~
crdoconnor
$150,000 = you are paying for early access to insider data. You are NOT paying
for a fucking help desk at that price.

Edit: downvoting does not change this fact either.

~~~
ddeck
According to the WSJ article on this, the current price is around $1500 per
month. [1]

Also, note that you are paying to receive an electronic feed of a company's
public SEC filings, which include filings detailing purchase and sale of stock
by the company's employees, which are called "insiders" in this context.

The phrase "insider data" conjures images of insider trading, which relies on
trading on material non-public information, and something quite different.

[1] [http://online.wsj.com/articles/fast-traders-are-getting-
data...](http://online.wsj.com/articles/fast-traders-are-getting-data-from-
sec-seconds-early-1414539997) (paywall, Google the title to bypass)

------
philrapo
Good commentary from Matt Levine @ Bloomberg:

[http://www.bloombergview.com/articles/2014-10-29/high-
speed-...](http://www.bloombergview.com/articles/2014-10-29/high-speed-
traders-avoid-low-speed-website)

"Is this bad? I mean, look, one: It doesn't matter at all. We'll get to that.
But, two: Sure, it's bad! It's symbolically stupid. The point of the Form 4 is
that the SEC wants everyone to know when corporate insiders buy or sell stock,
so that all the little investors can compete on a level playing field. As a
goal, this has its problems, but it's a goal. For the SEC itself to give this
disclosure to the little investors after professionals get it is not a great
look. " ...

"But when I say it doesn't matter at all, I mean, it does not matter at all.
The idea here is that subscribing to a news service or data terminal gives
"professional traders an edge over mom-and-pop investors." The article really
says that. Now, this seems pretty obvious. Most of the time, professionals
using professional tools will be better at doing things than amateurs using
amateur tools. There are very few fields of human endeavor where professionals
do not have an edge over moms and pops. But investing might come closest! You
and your mom and your pop can just index! It is great, you will beat the
majority of professional fund managers every year." ...

"if you are a mom-or-pop investor, and you are day-trading the stock of a $950
million specialty chemicals company based on your instant reaction to news
that a non-executive director has bought $194,000 worth of stock,5 then you
have already lost all your money. Nothing that I, or the SEC, or Eric
Schneiderman, could ever do will help you. You are doomed."

~~~
hackuser
The SEC is a government agency. It should not be favoring some citizens over
others, and the SEC should not be giving market advantages to those it
regulates.

~~~
knorby
They don't favor anyone, they simply charge for an unbiased service that only
traders with considerable other infrastructure investments would care about,
and at the $1500/mo cost based on the WSJ being cited, it's nothing. They
aren't even really delaying the release of the free information, they just
don't care about the timing as much as some HFT traders. The only potentially
injured parties here are cheapskate professional traders.

------
lrm242
Before everyone gets all hot and bothered:

(a) The SEC feed can be subscribed to by anyone.

(b) Whether the delay was 0 or 100 seconds, the computer consuming the feed
will always be faster than a human.

(c) The details of the study are murky and unknown. In particular, the data
collection aspect is suspect given it sounds like the researchers received
third party data not directly collected by themselves. How were the timestamps
handled? Were various caching issues properly accounted for? (The SEC website
is served up via Akamai, for example).

Anyway, it's great a populist topic these days. Evil HFT always beating you to
the punch, etc. But in reality, it doesn't matter because they are always
faster than you. I suggest you read this post by well known finance/trading
blogger Kid Dynamite: [http://kiddynamitesworld.com/someone-will-always-have-
the-da...](http://kiddynamitesworld.com/someone-will-always-have-the-data-
first/)

~~~
sp332
If you know that someone else has an edge, you can plan for it and you know
how much risk you're taking on. The stock market is heavily regulated to
reduce risk in trading. The scandal isn't necessarily that some people get the
info early (although that plays better in the news), but that it's a secret.

~~~
lrm242
Uhm, it's not a secret at all. It's called the SEC Edgar Public Dissemination
Service. It's right there on their website with instructions on how to
subscribe along with specifications and contact information. There is no
conspiracy here.

[https://www.sec.gov/edgar.shtml](https://www.sec.gov/edgar.shtml)

[http://www.sec.gov/info/edgar/ednews/dissemin.htm](http://www.sec.gov/info/edgar/ednews/dissemin.htm)

~~~
sp332
If it were known, it wouldn't be news that two independent studies discovered
it.

Edit: the second link says "Being forwarded all public filings acquired and
accepted by EDGAR at the same time as filings are sent to the SEC from EDGAR".
It does not say "several seconds early."

~~~
sseveran
If you worked trading earnings it would not be news to you. Computers are also
polling other places (like company websites) to see if the content is just
hidden but still available or gets accidentally posted early.

------
leroy_masochist
I'm not sure this is really much of a scandal. HFT / algo-trading firms are
generally trying to make a buck on market momentum, not fundamentals.

Investors who take time to actually read and interpret financial statements,
if they're good, can observe-orient-decide-act quickly, but 100 seconds does
not provide much of an advantage.

To the extent that there is a surprise in the Q or K, it's usually divulged
ahead of time in a revised earnings guidance by the company itself (albeit
this doesn't always happen when the surprise is to the upside).

Either way, the equity hedge funds that care about the details of financial
statements don't get their edge from a one-minute head start on reading these
statements; they get it from paying shady "industry consultants" to feed them
scuttlebutt.

~~~
harryh
HFT / algo-trading firms are NOT generally trying to make a buck on market
momentum. They're generally trying to make a buck by market making. They're
buck (or penny really) comes from the bid/ask spread.

~~~
leroy_masochist
Tomato, tomato. They're trying to make markets quicker than anyone else which
requires a split-second understanding of directional trends in the spread,
i.e., momentum.

------
sp332
There was a scandal last year when it was discovered that Thomson Reuters paid
the University of Michigan for early access to their market reports.
[http://www.cnbc.com/id/100809395](http://www.cnbc.com/id/100809395) That was
discovered when they traded 2 seconds before everyone else. You'd think the
SEC would have known since then that this is detectable.

Old edit removed for being wrong :p

~~~
maxerickson
Thomson Reuters is a data broker, their clients were doing the trading.

The elite clients paid for access to a conference call 5 minutes ahead of the
public announcement of the data.

The super duper elite clients paid for access to an electronic feed that
provided the data 2 seconds before that conference call began.

~~~
lrm242
The data was also collected by a private institution who has the right to sell
if it if they want. I'd love to have a Bloomberg Terminal on my desk, but they
are sooooo expensive! The populist rage fermented by Scott Patterson and other
journalists is at times quite disgusting.

~~~
rtpg
Insider trading is a thing you know.

A prerequisite to a free market is perfect information. Insider information
makes markets imperfect, thus losing the sort of holy grail property of
getting the "right" price for a good.

~~~
bobcostas55
>A prerequisite to a free market is perfect information.

So there are no free markets? Perfect information is just a theoretical
benchmark used by economists, not something you'll ever encounter in real
life.

>Insider information makes markets imperfect, thus losing the sort of holy
grail property of getting the "right" price for a good.

What a load of nonsense. Just think for one second about what you wrote: not
incorporating information into the price makes it "right"?

~~~
crdoconnor
>Perfect information is just a theoretical benchmark used by economists

It's not used as a benchmark. It's used as an assumption when building
(largely wrong) neoclassical mathematical models of the economy.

------
dheera
Well this is exactly how I managed to get a lot of free food and cruft back in
the days when I was an undergrad at MIT. There was a mailing list for this
stuff called Reuse, but rather than subscribe to the mailing list (whose
servers were slow), I subscribed instead to the Zephyr class of the
corresponding discuss archive and pulled the message out of the archive --
often 30-60 seconds before the e-mails would show up in peoples' inboxes. Too
bad it doesn't work anymore after they switched to Mailman and killed the
discuss archive.

------
dghughes
This or something similar was on 60 Minutes a few months ago it was Canadian
head trader at RBC Brad Katsuyama's work got the attention of Michael Lewis.

When Katsuyama placed large orders only some were filled and the rest later at
a high price. Exchanges closer to the stock market got trade data faster and
could outbid people.

In the end Katsuyama started his own exchange IEX and purposely delays their
trades using loops of thousands of feet of fibre optic cable (shown on 60
Minutes) to hide from the faster traders.

A lot of the big traders even Warren Buffet included dismiss it as sour
grapes.

[http://www.cbc.ca/news/business/canadian-brad-katsuyama-
in-s...](http://www.cbc.ca/news/business/canadian-brad-katsuyama-in-spotlight-
over-rigged-markets-allegation-1.2594639)

~~~
ycombobreaker
> This or something similar was on 60 Minutes a few months ago

In that it may involve HFT, it is similar. But otherwise, no. RBC's problem
was in failing to handle latency arbitrage when attempting to execute against
all 13-14 exchanges in parallel. Which was solved by Thor, not by IEX. And IEX
is a dark pool, not an exchange (quotes are not protected, nor even visible!)

The news here is that SEC is potentially underhandedly running a news service
business for earnings traders. I don't think it's much news, but it is quite
different from the "Flash Boys" discussion.

------
ececconi
I'm not sure about the macro-level benefits of this kind of high speed
trading. Yes, there are winners and there will be losers. The common-folk
won't be able to win consistently with high-speed trading strategies. But,
FOREX has been like this for years already.

This made me think of the great series here:
[http://www.chrisstucchio.com/blog/2012/hft_apology.html](http://www.chrisstucchio.com/blog/2012/hft_apology.html)

------
mrinterweb
I wonder if the root of the issue could be addressed by making a requirement
that valid stock transactions can only happen every 10 seconds. Transactions
could be initiated any time, but the price of the stock would be finalized on
transaction every N seconds. The intent to purchase (beginning of the
transaction) could specify how many stocks to purchase and what is the maximum
amount of money that could be spent for the transaction. A single service
would need to be the authority of all transactions.

I do not know much about how the stock market works, but I'd think that
addressing the unfairness of computerized trading would not be an impossible
thing to address.

------
itchyouch
Interestingly, the exchanges have been under fire from the SEC in regards to
the dissemination of marketdata. Are the exchanges sending out data from their
prop feeds at the same time it is submitted to the SIP?

Well if it is measured at the 1-second or 1-millisecond level, yes the
exchanges are in compliance. At the 100-microsecond, 10-microsecond and
nanosecond level, perhaps the exchange is in compliance at the 50th
percentile.

It will be interesting to see if the pressure on the exchanges changes course
as they empathize with the same type of dissemination problem.

~~~
lrm242
Exchanges do send data to both the SIP and direct data feeds at the same time.
The problem is that the SIP has an intrinsic disadvantage due to the
architecture and technology used that guarantee SIP market data will always be
slower than direct market data.

I'm hopeful that, in time, this will be fixed. Not so much because I believe
the latency induced by the flawed SIP architecture is material to SIP
subscribers, but instead for 2 reasons:

1\. The very same architecture that adds latency makes the SIP a SPOF in our
market system and as the NASDAQ Tape C outage showed, it can really suck when
the SIP doesn't work;

2\. The PERCEPTION of unfairness is much more harmful than any actual harm
done due to the SIP/direct latency delta. Fixing the SIP can directly correct
the source of the perception of unfairness and bring some credibility to the
market place and its governance.

~~~
itchyouch
The regulators are aware of the architectural disadvantages of the SIP. The
problem that exchanges face is not to disadvantage the submission of data to
the SIP by letting the prop feed applications live on faster hardware (systems
& network) as opposed to the application that submit to the sip. The issue I
refer to is in this particular article below. The disadvantag occurred even
before the SIP received the packet containing the data.

[http://online.wsj.com/articles/SB100008723963904435249045776...](http://online.wsj.com/articles/SB10000872396390443524904577651450485707824)

Those who truly care about latency will be reading the direct marketdata feeds
anyway.

The problem I was highlighting is what definition of "same" should the SEC or
the exchanges be held to? When measuring 2 packets with the same information
egressing an exchange, what delta is appropriate to be considered the "same"
time? Should the delta be within 1 microsecond? 10 microseconds? 1
millisecond? If the acceptable delta is say 10 microseconds, what's the
acceptable percentile that the prop data was 10mic faster than the SIP data,
or the SIP data was 10 mic faster than the prop data? Or is the exchange in
compliance as long as the delta's at the 99th percentile don't exceed 10
microseconds?

Nanoseconds count due to efforts like equidistant cabling that the exchanges
employ.

For a web property such as the SEC's, should the push service only push out
when the webpage is updated? What is the webpages are behind a load balancer
and multiple webservers will synchronize within several milliseconds? web
requests querying a webserver that is slightly behind in synchronization could
be several hundred milliseconds behind, while the push message has already
been out for several seconds.

The article is slicing hairs over seconds, which in the web world isn't a big
deal to human consumers. But where machines are consuming, even 1 millisecond
is an eternity.

~~~
lrm242
Fair points re: the SIP. However, that submission is the benchmark for
fairness is unfortunate. There is no reason it needs to be that way, and
fixing it and distributing the SIP (i.e., removing the centralized processor)
has numerous advantages that put to rest the latency, fairness and SPOF issue.

In that regime, measuring "same" becomes simple. Measure at the source the
venue specific SIP feed (which contains the venue's view of NBBO) and the
depth of book feed delta. Over the course of a day, that delta should
effectively be 0.

You're absolutely right about the SEC website issue. It's silly to get upset
about this since the "web" aspect of the distribution has so many layers.

------
omellet
For any amount of time less than it would take a human being to make a
decision and take action, it doesn't really matter the latency. Even if the
website and newsfeed release were guaranteed simultaneous, the mom & pop
investor typically doesn't have a computerized trading strategy, let alone one
running in a colocation facility with a single switch hop between them and the
exchanges.

~~~
fnordfnordfnord
Humans make the decisions, but they make them in advance. Machines are
programmed to parse the feeds and trade based on their content. This has
almost nothing to do with retail investing. It has to do with big players
paying for the privilege to front-run the rest of the market.

~~~
KMag
> front-run the rest of the market.

With apologies to Inigo Montoya, you keep using that phrase. I do not think it
means what you think it means.

[https://en.wikipedia.org/wiki/Front_running](https://en.wikipedia.org/wiki/Front_running)

~~~
fnordfnordfnord
> I do not think it means what you think it means.

I think it works.
[https://en.wikipedia.org/wiki/Front_running#Other_uses_of_th...](https://en.wikipedia.org/wiki/Front_running#Other_uses_of_the_term)

~~~
KMag
Which of those other usages applies in this case?

The listed other usages consist of: * Trading against a party who is legally
required to publish their intent to trade in a security in advance. *
Detecting large orders in the market and trading against them. * A financial
advisor producing its own report and trading on that information before
disclosing it to its clients.

------
gojomo
'Fair' release of market-moving information would be a good place to use true
'broadcast' technology: radio waves, rather than broadcast-like network
pushes.

Potentially, also, an encrypted full-length report could be pre-released. Only
after enough time for the ciphertext to be widely replicated to all interested
parties would the short decryption key be radio-broadcast.

------
jedberg
This seems like an easy problem to fix. There should be a quiet period between
market close and after-market open when all documents are released, so that
everyone has a chance to see and process the documents.

~~~
SeanLuke
This is fixing the wrong problem. The issue is not the rate at which people
are getting information; it is the rate at which people are _using_ the
information which creates the volatility.

My solution is as follows. When someone places a market order, the order is
not cancelable and his funds or security goes into escrow. Then he must wait
for a amount of time, selected at random from some distribution by the market.
For example, he might have to wait 5 minutes; or wait 2 hours. At that point,
the transaction occurs. The market will clear all transactions before it
closes. The idea is to significantly reduce the advantage people might gain
from rapid transactions. To discourage breaking transactions into many
microtransactions for purposes of gaming the distribution, we might also
introduce a small per-transaction tax.

~~~
jeffreyrogers
HFT does have some benefits that doing this eliminates:

1) It provides markets for securities that would otherwise by relatively
illiquid.

2) It compresses the bid/ask spread so that the price better approximates what
buyers and sellers are willing to pay.

The people who HFT affects are the institutions that are competing directly
with them. For the most part it doesn't affect what you or I should choose to
invest in as long as we assume we're investing, rather than speculating. (And
even if we're speculating, our time horizon is probably much longer than a HFT
firm's.

~~~
SeanLuke
I think these are microscopic advantages compared to the enormous, and well
documented, problems that HFT, and its volatility, cause in the market.

------
Link-
Why does william_stranix have his name highlighted in red (or organge)?

~~~
ashleyw
Indicates a new account (<1 month?)

