The University of Michigan’s market-moving reports on consumer confidence used to only be available via a $4,750 annual subscription paid to the university. About 150 groups subscribed, raising concerns about such a small group of people getting exclusive access to a sensitive report.
But for six years now, Thomson Reuters has paid the U of M for the exclusive rights to its Surveys of Consumers.
For more than a million bucks a year, Thomson Reuters gets its name on the index and gets to give its hundreds of thousands of subscribers a five-minute sneak peek at the consumer-sentiment report before it releases it to the rest of the public.
But thanks to a whistleblower (who alleges he was subsequently fired for ratting out Thomson Reuters, something the company denies), we know that Reuters has been letting a tiny group of algorithmic traders get a two-second jump on the report.
The New York Times reports that only about a dozen Thomson Reuters clients got the extra-early access to the report, and the wire charged them about $6,000 a month for it.
That these speculators—sorry: “investors”—were willing to pay $6,000 a month for a two-second jump on the markets shows the kind of money they believed they could make off the… let’s call it privileged information.
And so New York Attorney General Eric Schneiderman has pressured Thomson Reuters into suspending the practice. While it may not meet the legal definition of insider trading, as the Times reports, Schneiderman is investigating whether the company violated New York’s Martin Act. I doubt much will come of that.
But there’s little doubt what Thomson Reuters was doing was over the line ethically, particularly since it wasn’t exactly broadcasting the fact that it was giving the HFT bots the early dope, disclosing the two-second advantage it was giving them in marketing materials aimed at high-frequency traders.
The Michigan consumer-sentiment index is a sort of quasi-governmental economic indicator. It’s considered valuable enough that the university called in the FBI to investigate a computer hacking in 2004 that it said resulted in the early release of one report that caused a sudden rise in prices of Treasury futures seconds before the official release.
With the ascendance of the algobots, so-called machine-readable news is a growth market. The Journal reports it’s at $75 million a year already. You can be sure the super-competitive wires are fighting to serve it and so access to market-moving information issues are only going to proliferate.
It turns out, perhaps not coincidentally, that the FBI investigated recently whether Reuters, Dow Jones, and Bloomberg were breaking the rules there to get a fraction-of-a-second advantage). While the federal government’s economic releases are governed by strict rules aimed to prevent any small group from getting early access to the news, Michigan’s clearly are not.
That may be changing. CNBC’s Eamon Javers reports that Schneiderman’s probe goes “well beyond Thomson Reuters.”
(Updated at 12:35 to fix copy)Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum. Tags: algorithmic trading, high frequency trading, insider trading, scoops, Thomson Reuters