

Thomson Reuters Gives Elite Traders Early Advantage - gruseom
http://www.cnbc.com/id/100809395

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chollida1
I'm not sure if there should be any outrage over this.

It was already known that they released the data 5 minutes early to
subscribers who wished to pay more. It's not really a stretch to think they'd
offer tiers for people who wished to pay more.

The data is, after all, legally theirs to release, and Michigan University
knew and approved it.

If this is something people don't like then they can vote with their feet and
move to a different news source.

Once again Nanex is all over this.

~~~
adrr
What if companies did this with earnings reports? Released it early to people
willing to pay.

~~~
kasey_junk
If they were publicly traded companies that would be against the law.

~~~
brown9-2
With the idea being that those who bought access had an unfair advantage in
trading with the general public.

However, if "everyone" knows that some companies can buy these reports minutes
ahead of time, then when people lose out on trades in the minutes afterwards,
isn't it the fault of the people taking the trade?

It's not wise to trade with people who might have more knowledge than you. It
seems like there's a reasonable expectation that the people on the other sides
of these trades should know about the paid access.

~~~
kasey_junk
There is nothing illegal, immoral, or unethical about collecting information
or paying someone to collect information to give you an advantage in a trade.
Nearly every trade that happens has some information assymetry associated with
it. It is not a secret in any way that there are tiers of access to reuters
data. We could enact some sort of law that makes this illegal, but that seems
heavy handed and unlikely to have a positive impact on the market.

We have decided that it should be illegal for public companies to give
information selectively for the purposes of trading. We could easily change
this law, but history has shown us that it isn't heavy handed and does have a
positive impact on the market.

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squirrel
'[Reuters] 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." ' \- CNBC

(It's actually worse - it's six clicks from the home page to the document.)

' "...I eventually had to go down to the cellar to find [the plans]."

"That's the display department."

"With a torch."

"Ah, well, the lights had probably gone."

"So had the stairs."

"But look, you found the notice, didn't you?"

"Yes," said Arthur, "yes I did. It was on display in the bottom of a locked
filing cabinet stuck in a disused lavatory with a sign on the door saying
'Beware of The Leopard'." ' \- Douglas Adams

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rcthompson
Why not just put it on a sliding scale? One dollar per nanosecond or
something.

I'm not sure if I'm joking or not.

~~~
nostrademons
That actually would be really interesting, because you're essentially creating
an auction on the value of information. It does you no good to get the news a
nanosecond after your competitor, because in these markets (with large amounts
of leverage available) they've already bought up all the affected securities
and arbitraged out the difference. So it behooves you to bid up to your
expected profit from having that information, in an attempt to get the
information first. The transaction price gives you the dollar value of the
information to the highest bidder.

~~~
sliverstorm
Of course, if your systems can execute trades a nanosecond faster than your
competitor, you can afford to get the news a nanosecond after them.

~~~
nostrademons
Right, which is why major hedge funds heavily optimize their code, use C
instead of Java to avoid GC delays, and colocate their boxes on the exchange
to minimize speed-of-light delays. We already know the premium for executing
trades faster via solid IT: it's a lot.

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apalmer
Nothing to see here, its kinda funny to see the 1% be outraged by the fact
that there is a 1% of the 1% that 99% of them aren't part of.

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tdees40
Yes, this gives "elite" traders an advantage over the only-somewhat-elite
traders, but I would suspect that most sane traders who aren't doing hyper-
HFT-type trading will be unaffected. So it's a meh for me.

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jongraehl
The way they're monetizing their role in the release of this widely-followed
signal is morally equivalent to insider trading on their own.

That said, serious traders who object to this tax can predict the signal from
more-primary sources.

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guelo
Couldn't someone collect the same data that University of Michigan does and
beat all these guys?

~~~
john_b
In principle, yes. In practice, probably not.

There is a certain amount of overhead involved in the creation of the dataset.
Hiring people to call and collect answers, filtering the data, formatting it,
fielding questions about it, etc. The University of Michigan seems to
partially pay for this by the fees they charge Reuters. I am not sure if they
make a profit on it or, if so, how much. But you could probably found some
company to collect and provide the same amount and quality of data for
cheaper.

However, even if you were able to beat them on cost, you wouldn't be able to
charge nearly the same amount that UofM does for it. The reason is that the
UofM data goes back for over three decades, so traders can do all sorts of
backtesting with it. They are also a recognized "brand" in this field and over
time sources of trading information like the UofM report become ingrained in
traders' minds as "indicators" of one type or another. So, for various
practical and psychological reasons, your hypothetical startup would have to
charge a much lower price for the same data and spend many years earning the
confidence of traders.

Ironically, you might be able to make more money by selling the data as an
early predictor of the UofM report. Since traders know that the UofM report
can be a market moving event, any early predictor of it (even one with ~90%
accuracy) would be valuable. This would probably just force UofM to collect
and release the data earlier and with less polish though, negating much of
your advantage.

~~~
guelo
Your last point is kind of what I had in mind with my question. Not to try to
compete with UofM but to gather data to predict their results and use it for
your own trades. You could hold the results private and play the market to
beat even the high-frequency guys. You could even do a shoddy job of
collecting the data to keep costs down but maintain, say, a 90% confidence in
your prediction of UofM's numbers, that's enough to beat the market 9 out of
10 times.

~~~
glomph
You don't factor in the number of times UofM 'gets it wrong'. Even given their
influence you wouldn't be winning 9 out of 10 times. But it could still be an
edge.

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shasta
Why don't we just have turn based trading with turns of 1 or 24 hours and then
have a blackout period near turn ends when relevant information should not be
divulged?

~~~
tlrobinson
Is it possible to enforce such a system? Wouldn't people naturally create and
gravitate towards markets where they can trade in real-time?

~~~
bpicolo
Nah, it makes no sense. You could just artificially create transactions and
finalize trades every hour anyway.

~~~
shasta
I don't understand. So you can make side bets in real time with others who
choose to do so. The point is that those who choose not to do so don't have to
compete on millisecond scale response times to news postings.

~~~
tlrobinson
Maybe, but I suspect you'd end up with worse prices.

It would be hard to enforce a true "blackout period". Traders trade on all
kinds of information, not just controlled data. Wouldn't liquidity tend to be
lower on a non-realtime exchange, because everyone is essentially trading on
outdated information, resulting in worse prices than the realtime exchange?

But I know very little about this stuff, so maybe I'm completely wrong.

~~~
shasta
The blackout scheme is a very secondary thing. If you make interval 1 hour,
then the rapid response advantage only applies to data made available in the
seconds before the trading event. Rather than having a millisecond advantage
on every trade, the fat pipe guys have a millisecond advantage on every 3.6
millionth trade.

I think prices would be better for people not playing the low latency response
game. Liquidity within an hour would probably cost a premium as you'd have to
get the money from someone on the real time market.

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peterjancelis
I fail to see the problem. If you don't want to have any 'tiers' in third
party analysis info, logically it follows that all reports should be published
free of charge.

That would make no sense at all.

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malandrew
Why not sell this information directly?

Someone at Michigan should make a startup that builds a system to sell this
information at market value, which most certainly is way more than $1 million
per year.

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arjunnarayan
I don't see the issue here. Now that this is common knowledge, if you don't
subscribe to the Thomson Reuters feed, DO NOT TRADE until 10am and the price
has settled. Why would you ever participate in a transaction with someone who
you know has more information than you, and you know this information
asymmetry will be equalized within 5 minutes?

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andrewfong
There is something seriously wrong with an economic system where 2 seconds
makes that much of a difference.

~~~
rash_x
2 seconds can be a lifetime in this business. At least in Sweden one of the
stock exchange offers server space in the same machine hall as the exchange.
To minimize the physical distance.

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jfranche
Why doesn't something like this affect the University of Michigan's tax exempt
status?
[http://compliance.umich.edu/tax/tax.html](http://compliance.umich.edu/tax/tax.html)

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rash_x
Technically, it should be insider trading? Acting on information that has not
reached the market?

~~~
andrewfong
The information isn't coming from insiders though. It's statistical data
collected by third parties.

~~~
rash_x
So true. On the other hand it would be insider if the company hired third
party to collect information. It's s thin line but I think your'e right.

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scottmcleod
You've got to pay to play.

