Major Investigations Into Thomson Reuters

Milliseconds of advance notice represents big potential profits to traders. Last month, CNBC reported that Thomson Reuters disseminated ISM’s manufacturing numbers. This window of opportunity afforded high-speed information clients with tradeable information. SPY ETF responded almost immediately to the trading burst; the etf is a trading proxy for market direction. A downward trading surge occurred 15 millisecondsbefore the data were supposed to be released. That incredibly short period of time helped traders help themselves to profits. Thomson Reuters is the leader (ahead of Bloomberg) in financial information and data services used by the financial industry, tax and accounting, law firms, media outlets and science organizations. Information is primarily (rapidly) transmitted online.

Milliseconds and high-speed trading impact. Thomas Derry, CEO of ISM, told reporters about how the data were released; he believes the situation occurred as a result of an anomaly that won’t be repeated. The early release of ISM’s data occurred on June 3rd and was almost immediately noted by a Nanex analyst who reported this observation to CNBC. According to Nanex information, approximately 30,000 SPY shares traded in a single millisecond< during the fifteen millisecond period between the early release and official release time. Nanex said that 369 other shares traded down as a result of SPY. About $28 million in SPY shares traded during the millisecond window.

Information and time equal trading power. In an agreement signed between Thomson Reuters and the University of Michigan (the producer of the widely-cited statistic), data are supposed to be posted on the web for the benefit of a general public audience at 10:00 am on the release date. Thomson Reuters pays a $1 million access fee to the University of Michigan each year for its exclusive use. Thomson and the University of Michigan confirmed an existing working relationship.

Ultra low latency distribution equals unfair trading advantage. Information buyers, e.g. elite traders, had access to the critical information before the rest of the general public. Some traders may have received the a ‘heads-up’ after a conference call occurred at 9:55 a.m. about the data. However, trading clients of Thomson’s ultra low latency distribution platform received information pre-formatted for electronic algorithmic traders at 9:54:58:000. In some cases, the data might have arrived up to 500 milliseconds earlier, according to contract agreement. Elite traders using the ultra low latency platform had more than enough time to execute favorable trades against the information.

Ultra-tiered information distribution. There are multiple ethical concerns about the timing mishap (relating to the time when the general public was expected to have the statistical data) and when various trading populations received the information ahead of the curve. A difference of seconds can mean millions of dollars in trading profits to elite algorithmic trading organizations. According to “Yahoo Finance,” a blink of the human eye occurs between 300 to 400 milliseconds.

Investigators have thusfar determined that the early release of the data was a mistake, but the timing differences noted between trading information purchaser levels points to consistent early receipt of multiple levels of trading data on a consistent basis. That difference in time is crucial to electronic traders’ advantage in the markets. In comparison, non-professional traders, e.g. individuals transacting trades for their own accounts, do not receive early access and may therefore trade at a comparative disadvantage.

A Securities & Exchange Commission spokesperson commented that educational institutions, e.g. the University of Michigan, should maintain higher standards as to whom information such as the consumer confidence index data is sold. Some investors’ cries of “unfair” and “insider trading” indicate the discussion related to Thomson Reuters’ inadvertent early release of data will continue for some time.