Early release of economic data to high-speed traders upsets some

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NEW YORK — Some on Wall Street are crying foul after revelations that deep-pocketed traders get early access to closely watched economic data that moves the stock market.

High-speed trading firms get a two-second head start when Thomson Reuters, a financial information provider, releases the University of Michigan’s consumer confidence report.

Even a split-second can mean billions of dollars in an increasingly computer-driven financial system. Major Wall Street firms now employ sophisticated algorithms to conduct rapid-fire buying and selling, all within the blink of an eye, leaving slower investors in the dust. Lightning-fast speed is so highly prized that high-speed trading firms pay top dollar to place their servers in the same data centers housing exchanges’ computers.


“These guys are allowed to legally cheat right now,” said Christopher Mroz, a 32-year-old day trader in Manhattan’s financial district who invests his own money. “It’s just not fair.”

The early peek at the data could threaten to further erode investors’ confidence. The stock market has seen a string of trading debacles in recent years, including the so-called flash crash of 2010 and Facebook’s botched initial public offering last year.

Securities laws and regulations generally aim to give all investors an equal footing to make the stock market fair for everyone. That’s why public companies are required to disclose important information to all investors at the same time. And that is why insider traders go to prison for buying and selling stocks with company information unavailable to the general public.

Although the University of Michigan’s arrangement may be perfectly legal, it calls into question the markets’ fairness and transparency, said Dennis Kelleher, chief executive of Better Markets, a Washington investor advocacy group.

“Many people believe the markets are rigged for insiders by insiders,” Kelleher said. “Why should anybody have any confidence in these markets?”

The investing public gets to see the twice-monthly Index of Consumer Sentiment data at 10 a.m. Eastern time on the second and fourth Fridays. Reuters clients get an earlier look at 9:55 a.m., and that’s when the University of Michigan holds a conference call to announce the data with firms that pay for early access.


But at 9:54 a.m. and 58 seconds, high-speed trading firms get the data so their computers can make trades before the rest of the market can react to the data.

When that two-second window closes, the data has already been priced into the market, said Eric Hunsader, founder of the financial research firm Nanex, which analyzes market movements after the data are released.

“There’s no change at all when it’s released at 9:55 or 10 o’clock,” he said.

Investors who would otherwise want to make money by buying or selling based on the consumer confidence reports can’t if the fastest firms have already made their trades.

Economic data often sends stock markets higher or lower. The U.S. Labor Department’s monthly jobs report, which is released before the stock market opens, tends to have the biggest effect.

But unlike government data, the University of Michigan’s consumer confidence data is private and is distributed to private clients.

Kelleher called for more regulation of high-speed trading firms but doesn’t think policing the release of private research would work.


A spokesman for the U.S. Securities and Exchange Commission declined to comment.

Reuters, a financial data and news service, did not respond to requests for comment. University of Michigan spokesman Rick Fitzgerald said the data release complies with securities regulations.

Reuters clients who pay more have been able to get the information two seconds faster since 2010, but business television network CNBC spotlighted the arrangement last week. The university struck its deal with Reuters in 2007, and the financial information company pays the school about $1 million a year for the research, he said.

Fitzgerald said the research’s sponsors have gotten early access to the results since the university began collecting it in 1946. That’s not unusual for so-called sponsored research at a university, he said.

“This research wouldn’t get done without the sponsors paying for the research,” Fitzgerald said. “What’s really changed is the delivery method.”