A crackdown on early access to private market data will make little difference in making trading fairer, according to industry experts.
Market data provision has long been one of the most highly competitive services provided to market participants, with exchanges, media outlets and data specialists going head-to-head to provide the most timely and accurate trading news.
The market data business has also had to keep pace with market developments and today has to work in the world of the microsecond. However, US law makers could be about to crack down.
Yesterday, Thomson Reuters chose to suspend a service that delivered twice-monthly data from the University of Michigan’s Survey of Consumers early to a select group of clients. High-frequency traders (HFTs) and others pay US$6,000 per month to the financial information provider to receive the data two seconds earlier than other subscribers. The move follows a request by the New York Attorney General, which is reviewing the service on the basis it could be considered as a form of insider trading.
“The University of Michigan consumer confidence data issue points to the very heart of why Main Street distrusts Wall Street. This re-enforces the belief that superior, beneficial information is only available to institutional entities willing to pay for it,” said Matt Samelson, principal at consultancy Woodbine Associates.
Paul Rowady, senior analyst at consultancy TABB Group, said the practice created an unfair advantage to certain market participants. “This is giving a huge edge to a select group of Thomson Reuters subscribers and data providers should be making an effort to ensure they distribute data to all subscribers at the same time,” he said.
Infrastructure inequality
However, Rowady suggests that the issue is further complicated as the time lag between distributing data and receiving data varies due to a number of factors.
“Unless everyone who wants to act on a certain piece of data is in the same location with the same technology and infrastructure, then you can’t guarantee it will be received and acted on at exactly the same time,” he explains.
Tanuja Randery, CEO of data infrastructure provider MarketPrizm, says many data providers have tiered models, but this does not mean they are necessarily facilitating insider trading.
“The industry has always offered tiered subscription models. For example, FX providers have often provided exclusive data feeds for their clients, but this data is often available elsewhere and could be brought together by anyone. Unless it concerns official market-moving data, like statistics from the Bank of England or the Fed, then it’s not really giving a significant advantage,” she said.
As most of the subscribers to the exclusive data feed are HFTs, Rowady said the capacity of such firms to receive and act on the data faster than other Thomson Reuters clients means removing the early-access could have little impact.
The data provided by the University of Michigan is a survey of consumer sentiment assembled and analysed by the university. Critics of the Attorney General have pointed out that it is up to a private institution to decide how it wants to package and sell its data.
“The information is owned by the University of Michigan so, from a legal standpoint, there is the argument they have the right to make it available to whom they wish as they wish. This is one of those issues where there is no clear cut right or wrong from a micro standpoint but there are considerable perception issues,” said Samelson.
Small fry
Rowady suggests that the issue is a relatively minor one and that lawmakers and regulators should be focused on more important issues affecting the industry.
“In the grand scheme of things, the advantages of getting this kind of data early are going to be profits worth several million dollars and the cost and effort of making sure all data is distributed equally to all participants will give very little return,” he added.
Randery believes that market participants should accept that creating a level playing field on data and news provision is unlikely and should make their own decisions about which data is most important to them and fits within their budget.
Currently, only the University of Michigan data feed has been affected and will now be released to all Thomson Reuters clients at 9.55am, ahead of its public release at 10am. Other early-access data is currently unaffected.