The Futures Industry Association Principal Traders Group (FIA PTG), an industry association, has called for clarity on how official policy releases are distributed, suggesting the media’s acquisition of information ahead of official publication can lead to unintended outcomes.
The trade body, which counts high-frequency trading (HFT) firms among its members, said in a statement that market-moving data and statements produced by the federal government, and other official agencies, should be released through systems that guarantee equal access to market participants and other entities, including the media.
Citing last week’s Fed announcement to hold off on scaling back the US government’s monthly US$85 billion bond buying programme, the FIA PTG said the process of media agencies acquiring information on an embargoed basis before it’s publicly available can potentially lead to unintended market consequences based on, in part, the location of firms’ servers.
Since March, the Federal Reserve has given accredited media agencies policy statements under embargo, which the FIA PTG said skewed market activity to centres where key media agencies host their servers – namely New York and Chicago.
“We urge each government agency that releases market-moving information data to explain more clearly the mechanics of their release procedures, including the role of media agencies,” the trade body said in a statement. “We believe that greater transparency would improve public confidence in the fairness and integrity of the release processes and help to prevent misunderstandings and confusion.”
The location of media servers would impact trading for HFT entities that base strategies on incremental connectivity and market data speeds. As such, fractions of a second can define the success of a single trade.
The FIA PTG added that non-governmental releases, such as the Michigan Sentiment survey, should also be distributed across the industry in a transparent manner to create a level playing field for investors.
On Friday, New York Attorney General Eric Schneiderman described HFT firms that can access information such as the Michigan Sentiment survey faster than other market participants and subsequently make trading decisions based on that information as “insider trading 2.0”.
Schneiderman’s office is currently investigating several HFT firms and he said the practice of having faster access to certain information created an unfair advantage and was not beneficial for the free flow of capital within the economy.
In July, Schneiderman’s office was successful in stopping Thomson Reuters from giving select clients faster access to results of Michigan survey, which were then used to inform high-speed trading decisions.