
16 Major Firms May Have Received Early Data From Thomson Reuters - kevando
http://www.rollingstone.com/politics/blogs/taibblog/16-major-firms-may-have-received-early-data-from-thomson-reuters-20130905
======
JackFr
I don't understand on what legal basis the SEC could force Reuters to stop
selling the information to different people at different times. Reuters is
simply not under their jurisdiction, and the University of Michigan Survey is
not a public good, which everyone is entitled equal access to.

On the other hand, the SEC could forbid registered entities from buying the
survey before it is generally available.

More importantly, I think Taibbi's outrage is misplaced - I don't see a victim
here.

~~~
DannoHung
The problem isn't that some customers are given first access, it's that they
are given secret first access.

If Reuters had made it widely known that the report would be issued to
customers in a higher tier first, this wouldn't be a problem. The fact that
they were giving it out to certain customers first without telling others that
they were going to be getting it later is the material issue. They were,
fundamentally, helping create inside information for certain customers and
creating an opportunity to exploit other investors who would be unknowingly
trading with an information gap.

Even though the report was going to be widely disseminated, getting it ahead
of other people without them knowing allows for you to create a huge market
advantage for yourself if you know those other people are going to be trading
on the same information shortly.

~~~
yummyfajitas
Yes, doing research and gathering information does give you a huge market
advantage.

That's not the same thing as inside information, which is privileged
information given to you by a corporate insider with a fiduciary duty to all
shareholders.

~~~
ihsw
The difference isn't nearly as cut-and-dry as you think, especially since a
variety of regulatory institutions have varying rules between them. Some
jurisdictions cast a very wide net so that even associates and family members
are included.

Since this debacle is approaching world-wide proportion then the impact will
be similarly global.

------
deveac
_> Specifically, Nanex saw a spike in the milliseconds before 9:54:58 on
December 7th, 2012. To be exact, they saw a flurry at 9:54:57.18, nearly a
full second before the "third-tier" algorithmic subscribers got their data at
9:54:58 a.m. This is exactly what you would expect to see if someone, or a
bunch of someones, had access to the data even before 9:54:58 a.m. In this
game you would want to hold your cards until the last possible moment before
placing your bets._

A phenomenon not unlike what many of us have experienced bidding for an item
on ebay.

Yet another example of the game being rigged. I don't invest for a living, but
I've always thought it folly to approach the exchange in any manner other than
a long term diversified one (as an individual investor). Maybe it is my lack
of sophistication in the area, but anything else feels like gambling to me.

~~~
kasey_junk
As someone who does work in this industry, a spike before the number is
completely explainable without anyone having early knowledge.

Lots of market participants are speculators. If you are speculating on the
results of the number, you need to make sure your orders are in before it.
Everyone in the low latency game knows when the number is coming, so it makes
sense for speculation orders to go in when they do.

Now if Nanex wanted to prove something, they could show that a high percentage
of those orders are consistently on the "right" side of the number, something
they haven't done.

~~~
deveac
I think that the unethical (illegal?) problem is already inked in black and
white where the three tiers of market information recipients exist.

I didn't make that clear at all in my comment, but yeah, I agree that the 4th
tier is definitely speculation at this point.

I agree that it would be interesting to look for the payout skew for the
numbers; that would just verify an additional transgression in my book.
Unfortunately nobody reads my book so to speak :)

~~~
theorique
It's neither illegal nor unethical for a private entity to invest money and
manpower to compile statistical data, to release it in a staggered fashion,
and to charge purchasers for early access.

~~~
Incinr8r
It sounds innocuous enough with absolutely no context, but the fact is that
they are selling market-moving data, and they know it. They know exactly what
staggered release of this data does: create an uneven playing field for all
but the wealthiest investors. This causes the creation of false profits that
don't come from actual risk, or underlying value of securities, but by
screwing retail investors, pension funds, and anyone else who doesn't start
off with absurd amounts of money to begin with. Sure sounds unethical to me.

~~~
theorique
Of course they are selling market moving data. If it weren't market-moving,
why would anybody pay a premium price for it? Just because something is
market-moving does not make it "material, non-public information" about a
specific company. And just because something is market-moving doesn't mean
that a trader or hedge fund or whoever makes use of this data will gamble
correctly and win every time.

You see people paying for privileged access to information all over the place.
For example, on a slower time scale, industry analysts hawk expensive monthly
newsletters or one-time reports. Bloomberg terminals provide news feeds and
market data for the bargain price of ~$2000 a month.

~~~
Incinr8r
I'm no financial or legal expert, but by market moving I am referring to data
that moves the aggregate market in a fairly predictable direction. If jobs or
the consumer confidence numbers go up, the market follows and vice versa. If
your system gets this data before everyone else you essentially have a money-
printing machine (at the expense of everyone else).

If you report data that's valuable because the federal government uses it in
monetary policy decisions, then just push it to your customers as soon as its
available for a flat rate.

When a company intentionally holds back data to make money on an incremental
time difference, I'm sorry, that seems scammy and unethical to me.

As to Bloomberg consoles, that seems like a slightly different case, but if
they similarly tier, then it is also unethical IMO.

Don't pit your customers against each other.

~~~
theorique
In the trading game, there are very few things that move the broad market in a
predictable direction. Simple correlation and causality get very, very hazy.
It's not a simple matter of:

* get data a little early

* go long on the index

* profit!

A trader could execute all possible best-practices, and the numbers go the
'wrong' way. Or they go the 'right' way for a while, but then turn around as
other traders cash out. Regardless, there's no guaranteed profit just because
you have paid for early access.

The presence of risk-taking traders on all different time scales in secondary
markets means that there's liquidity and accurate price-formation at a range
of different time scales. At the very shortest time-scales, all customers are
_already_ against each other - it's the nature of a very liquid market, where
A's gain is B's loss and vice versa.

But all this churning activity means that if you want to cash out your Apple
stock, there's going to be a buyer right there on the other side, at all
times. Without a deep reserve of risk traders willing to take the other side
of every trade, liquidity is lost and capital is less likely to be attracted
to the public markets.

------
apalmer
Honestly Stock Market investing is not nor has it ever been for the common
man. The hyper aggressive day trading & HFT sector is not for the common man.
As for the slow long term investment route, the biggest section that gets
abused by the savvy investors is the institutional pensions and such.

Bottom line if you are not going to put in significant effort you are not
going to get much out of the stock market except by pure luck, and on average
your going to lose... for the common man the effort necessary to make an extra
15% on your yearly income in the stock market, is more than if you did
overtime or even went out and got a part time second job to earn that extra
15%

~~~
gizmo
Day trading and HFT are not for the common man. But regular long term
investing is.

Getting a part time job is only a good idea if you have very few assets.
Suppose you have 50k in salary and 50k in assets, then it's much easier to
earn an extra 5k per year than it is to get an extra 10% return on your
investment.

However, if you have 50k in salary and 500k in assets the story is the other
way around. Investing 500k for 10 years with 6% interest instead of 3%
interest leads to gains of 395k and 172k respectively. In this case making an
effort in investing your money sensibly will lead to an extra 22k every year.
A substantial difference. And as your assets increase your investment strategy
only becomes more important.

Then there's the issue that not investing your money simply isn't a viable
option. Inflation will chip away at your money at 3% per year, so you lose 25%
of your money every 10 years if you stick your money in a checking account.
Then there's the issue of employer-based 401k matching. You pretty much have
to invest here, otherwise you lose out on free money. And if you just pick
some investment funds at random you're going to do very poorly indeed (because
many 401k funds are basically scams)[1].

[1] See [http://www.pbs.org/wgbh/pages/frontline/retirement-
gamble/](http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/)

~~~
pnathan
> Day trading and HFT are not for the common man. But regular long term
> investing is.

+1

I drop a portion of my money each month into selected ETFs and it's done well
for me (ha, the market has been on a bull rush, of course it did well for me).

------
yoshakezula
Matt Taibbi is the man - he's one of the only investigative journalists to
consistently stay on Wall Street's ass and make reading about it entertaining
(and not just depressing).

~~~
kasey_junk
Except he is nearly always incorrect in what he is reporting. For instance, in
this article he makes a claim that early reuters data leads to front-running.
That is just technically wrong. If he is going to report on a subject,
understanding the basics of it would be a good start.

~~~
lifeisstillgood
err, isn't Front-running knowing what your customers are going to do as a
trade and getting in first (so if you order my guy to buy IBM, I simply buy
some IBM first, then sell it to you, making a little bit off your order).

So if I know the results of the orange harvest before you, I can buy frozen OJ
futures and sell them to you _even if you are not placing an order through
me_.

You still lose out, I still take advantage of my private knowledge. Whats the
difference?

~~~
kasey_junk
The difference is that one is illegal and unethical and the other isn't. There
is no promise in the markets that everyone will have all relevant information
at the same time and at the same quality. Why should that promise exist? If I
spend my time and energy doing more research than you, why should you get the
same advantage?

What we do have is a promise (cynical folks might say promise is too strong
here) that if you are my broker, you can't use my non published order desires
to take market positions.

We also have a promise that certain covered individuals working for a publicly
traded company, cannot release certain material pieces of information about
that traded company to anyone early, nor can they trade on that information
before it is released.

The problem is not private knowledge, there is tons of that in the market, and
that is what makes people take different market positions, thus enabling the
market to exist. What is problematic is for people to take advantage of
information that no one else could conceivably get.

~~~
foobarqux
> There is no promise in the markets that everyone will have all relevant
> information at the same time and at the same quality.

There may be no such promise but it is not clear on its face that such a
promise should never exist, for example, to maintain liquid and orderly
markets.

Is there any situation where it would be desirable?

If only 10 entities could buy real time stock quotes from the exchanges and
everyone else had a 5 minute delay, wouldn't that be undesirable?

And what about government interest rate decisions? Should some entities be
allowed to get early access?

~~~
tptacek
This comment is running off on a tangent but I think it's important to
understand that Kasey is right here, and front-running orders requires
knowledge of the victim's specific trading intent. You aren't "front-running"
simply because you're smarter than some other market actor.

------
mattip
If you're going to engage in an arms war, you better have the best tools. I
never really understood how small investors think they can do microtrading,
but apparently it is common since the trading sites bombard you with the very
latest statistics.

~~~
gizmo
Since all trading sites get a commission on each trade it's no surprise that
they don't push people to put their money in a number of Vanguard index funds
for 30 years.

On some of the investment funds offered by my bank their fees are so high the
investment fund will never ever make money for the customer. And yet they
shamelessly sell it anyway.

~~~
ImprovedSilence
I use TDAmeritrade, which actually offers a number of vanguard and iShares
ETF's commission free. It really incentivizes investing in those rather than
anything else. I know there has to be a catch somewhere on it, but I don't see
what it is...

~~~
gizmo
9 out of 10 times this means TDAmeritrade receives a kickback from
Vanguard/iShares whenever you buy their shares. So there is a commission, and
it's still being paid by you (albeit indirectly). This kickback doesn't need
to be very large because TDAmeritrade isn't doing much work. My guess is that
you can't buy shares in Vanguard's low profit margin funds (such as VFIAX -
0.05% expense ratio) without any fees, only Vanguard's high margin funds.

Of course, Vanguard wants to steer people to their more profitable investment
funds, and paying the sales fee to the bank on behalf of the customer is a
good way to do that.

~~~
ImprovedSilence
Perhaps. I'm quite green when it comes to investing, so I probably haven't
paid as much attention to expense ratio as I should have, but I have tried to
minimize investments in high expense ratio accounts. The big one for me that I
get commish free is IVV, which, if I buy in small chunks monthly isn't too bad
at a .07% ratio, no?

~~~
gizmo
IVV is very solid. IVV is competing fiercely with the new competitor VOO and
SPY (the 3 funds are effectively identical). Vanguard charges the least (0.05%
per year) and SPDR charges the most (0.09%). 3 years ago IVV had an expense
ratio of 0.09%, now they're charging 0.07% and I expect their ratio to go down
to 0.06% in the next year or two. Vanguard is trying to steal their lunch.

So if you get IVV without commission you're benefiting from this price war.

------
malandrew
From the point of view of maintaining a just society, the big problem with
allowing things like this is inconsistency in enforcement. Either you level
the playing field with respect to informational advantages across the board,
and you prosecute bad actors with impunity, thus making it unattractive to bad
actors, leaving only good-faith actors participating. Or you make it a caveat-
emptor market, where no actor has any guarantee of a fair trade, leaving
everyone to question any trade they want to participate in. This will drive
out all the good-faith actors that know the game is rigged and not in their
favor and it will leave only actors who are trading on the idea that they
think that the fool at the table is not themselves.

Personally, I'd be very curious to see two parallel markets for securities:
one that is completely unregulated where anything goes and one where any bad
actor is prosecuted to the fullest extent of the law, including multi-year
jail sentences and fines that are many multiples of past ill-gotten gains.

This would leave every actor with the choice of participating in the market
they want to participate in, including both investors and companies. Companies
could choose to list their securities on one just one of those two exchanges
or both, and investors could invest only in companies on one exchange or on
both exchanges.

The problem with the status quo is that the only actor who knows what exchange
they are playing in is is the bad actor. The good actor often will not know
that his counterparty is acting in good faith or is corrupting the system
until after losses are suffered.

Creating a market for markets, where you can choose between unregulated and
regulated markets, allows actors to choose which system they prefer to
participate in and leaves regulators free to actually enforce the regulations
without being soft for fear of what it may do to the market itself, which is
exactly what happened in the 2008 crisis. Regulators were scared shitless of
really prosecuting bad actors for fear of plunging the world further into a
recession.

~~~
javert
Sounds good to me. The regulators will never allow it, though. It decreases
their own power. They would call the unregulated markets a danger to the
economy as a whole.

(Ironic, isn't it? Since the "Great Recession" was caused by government, as
well as the fact that we're still in a slump and will be until there is major
political change.)

The business of the SEC is to nanny rich adults, and nobody wants that job
because they just care so much about those rich adults and truly want to force
them to do the best things for themselves. As if forcing people to be good
were even possible.

~~~
dragonwriter
> the "Great Recession" was caused by government

This is true only in that it was a direct consequence of deregulation that
removed regulations designed to protect against a repeat of the Great
Depression.

------
brudgers
Ask HN: Why can't I spot the sucker in the stock market?

------
josho
It strikes me that there is now enough evidence that high frequency trading &
algorithmic traders are a blight on the markets. They should either be banned,
or protections put in place to negate the arms race they cause. I see this
'early data' as part of that arms race.

Does anyone have any evidence whatsoever that high frequency trading is a
benefit? I've read arguments that they are market makers by creating
liquidity. But, I've yet to read a compelling explanation as to how they
actually achieve that, nor how its provably valuable to the market as a whole.

~~~
HockeyPlayer
Chris Stucchio addresses this at
[http://www.chrisstucchio.com/blog/2012/hft_apology2.html](http://www.chrisstucchio.com/blog/2012/hft_apology2.html)

He links to the HN comments as well.

------
smewpy
If there is one thing I've managed to become sure of in my time on earth, it
is that existing financial systems are explicitly designed by the status quo
to be abused by the status quo.

------
ShabbyDoo
The article suggests that more than a few seconds of privileged access to an
important economic indicator would have little value due to the speed of
algorithmic market participants. I disagree. Imagine that you knew this
morning's unemployment number a second before everyone else. Could you have
become a bazillionaire? No. Your potential windfall would be limited by how
much of a position you could take on without moving the prices of instruments
past the point of where they likely would end-up after the general
availability of this economic indicator. Order books are fairly light right
before a number is released because most participants presume themselves to be
the victim of a better-informed trader if the option they "wrote" by putting
an order on the book is exercised. So, you as a well-informed trader would
have limited opportunity to take on position without paying at least as much
as the likely value of that position after everyone knows what you knew a
second beforehand. Conversely, imagine that you knew a day or two ahead of
time what this morning's unemployment number would be. You could slowly build
up a huge position and make orders of magnitude more.

------
the_french
Can any legally informed HNer explain the probability of criminal prosecution?
The article seems to imply that it is un certain that this is illegal, but to
me it seems like this is insider trading at the very least and maybe something
else (criminal). The article says on this:

    
    
      > There are disagreements as to whether or not this practice is illegal.

~~~
yummyfajitas
If Steve Ballmer comes up to you and says "hey buddy, I'm retiring soon,
better buy some MS since the price is going up", and you buy, that's insider
trading.

If I (unrelated to Steve Ballmer) tell you "hey, that guys getting old, he'll
probably retire soon", that's not insider trading.

Near as I can tell, the Reuters early release is firmly within the category of
the latter. I can't see any reason why early release of private research would
be illegal.

~~~
lifeisstillgood
Is there a pricing page on the Reuters site that says "standard", "Two Seconds
early" and "One hour early"?

If not I suspect its illegal.

Al Capone was done for tax evasion, cannot see why Reuters cannot be in breach
of a Fair Trading / Sales Act :-)

~~~
kasey_junk
As the article points out, the contract clearly shows the 3 known levels data
distribution times (2 seconds early, on time, 5 minutes delayed).

If they were releasing it at other times it would most likely be a contract
breach or some other civil matter.

But that is a big if. All this article points to to prove that is a
disgruntled employee and a Nanex study (all months old) that do not have any
proof of early release.

~~~
Jacqued
This is not the customer's contract, it's the University of Michigan's
contract.

If the regular customers know that there are other more privileged tiers that
impact the value of what they're buying, I guess it's ok. Otherwise, i think
it might qualify as fraud

~~~
kasey_junk
These tiers are widely known about in the algorithmic trading community. There
is marketing materials on Reuters site outlining the advantages
[http://thomsonreuters.com/machine-readable-
news/](http://thomsonreuters.com/machine-readable-news/) and if you are event
trading you certainly pay for this.

If the 4th secret tier exists, that would be a bigger problem but there is no
proof of that in the article. It is all speculation.

~~~
aet
Where can I find tiers and pricing? Just curious..

~~~
kasey_junk
I don't actually use their service, I assume pricing is available via a sales
rep via their contact us page. If you want notice about the tiers, take a look
under the "Suite Components" portion of the link I provided.

------
Mikeb85
If it's survey data, it seems as though Thomson Reuters should be able to
release it however they want to release it.

For individual investors, sitting on the sidelines, watching the carnage and
then jumping in is probably the best play. No small investor can beat the
machines at their own game, but you can most definitely take advantage of the
swings in the market caused by the machines...

------
na85
Quite frankly I believe there should be a cooldown period between trades, with
the effect of eliminating the practice known as High Frequency Trading.

------
mkramlich
I deduced a long time ago that the "Wall Street + Washington DC + Big Media"
combined entity/ecosystem is rife with front-running tailored to the Big Money
players.

