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 day trader in Manhattan’s financial district. “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. 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.
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.
