Wall Street Banks Obtain Market Data Ten Minutes Before Everyone Else

[kpete]

DESVARIEUX: So, Bill, can you just explain for our viewers what exactly is front running? And can you give us a bit of background to this story?

BLACK: Front running can be either that you're trading and you know that your clients are going to be buying or selling something, and you trade ahead of them to take advantage to what's going to happen to prices, or in this case you get market information before everyone else does and you get to trade in advance on that specialized information, in which case you have an enormous advantage.

DESVARIEUX: And what did Thomson Reuters do?

BLACK: Thomson Reuters partnered with the University of Michigan, which is where I spent seven years studying and got two of my degrees. And the University of Michigan has been famous for 50 years for its research in a particular area, and this particular subset is a survey of business confidence. And this survey of business confidence is used all over the world as one of the leading indicators of what's going to happen economically. So places like the Federal Reserve, in deciding how to move interest rates and such, look very heavily at this Michigan report.

And what we know that Michigan agreed to do in its contracts with Thomson Reuters was to give certain clients who paid extra money a two-second advantage in how soon they would get that information. Now, that might not sound like much, but these are for folks who are engaged in what is known as hypervelocity trading or hyperfrequency trading. So they actually trade in under a millisecond, under a thousandth of a second. So this is like two years' worth of, you know, advanced information in terms of how fast these guys operate. That's the part we know.



More:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=10714
http://www.rollingstone.com/politics/blogs/taibblog/16-major-firms-may-have-received-early-data-from-thomson-reuters-20130905

[Egalitarian Thug]

1. K&R Been going on for years. That's how G$ became G$.

It's only insider trading if you're not really an insider.

[liberal_at_heart]

2. bingo.

[questionseverything]

7. this is trading places

and oj futures on steriods

[DonCoquixote]

20. Exactly, ask Martha Stewart

She did more jail time than any member of Enron.

[Nye Bevan]

22. Martha Stewart served 5 months.

Enron's Jeff Skilling is still serving a 14 year sentence.

[DonCoquixote]

25. corrected , though

Ken Lay served NOTHING.

[99th_Monkey]

3. Holy Shit! Wall St.'s fig leaf just fell off folks.

Now, it's like Brother Leonard says, "everybody knows the dice are loaded... "

[gopiscrap]

4. that's fucked up

this needs to go viral

[1-Old-Man]

5. To be honest with you, So What? Anyone who buys stocks based on a 10-minute price is gambling.

I have owned shares in a number of individual companies (as distinguished from Mutual Funds) over the years and I did not invest in any one of them based on what the price was 10 minutes ago or what it might be 10 minutes into the future. Maybe that's because I've never bought a stock that I held for less than a year either. 10 minutes is really neither here no there, I buy based on my expectation of both dividend income and price appreciation greater than the rate of inflation over time.

Maybe I'm just old fashion.

[liberal_at_heart]

6. You can make a few dollars that way. but these Wall Street bankers are raking in billions

by having special rules put in place just for their wealthiest clients. There are two Americas, and there are two stock markets.

[bigmonkey]

8. They're not gambling if they know what the outcome is going to be.

As the W.C. Fields character said, when asked "Is this a game of chance?": "Not the way I play it, no."

This is cheating, straight up.

[liberal_at_heart]

9. exactly.

[zeemike]

11. I once knew a man that ran a gambling operation

And I asked him how he did it.
He told me he never made a bet he did not know the outcome of.

[DeSwiss]

10. These aren't people trading. They're too slow.

These are computers trading with each other.

- The humans in the game now are the pawns.....

K&R

[Spitfire of ATJ]

12. It's insider trading. Or, as Carlin put it, "The game is rigged"....

You already KNOW the price has peaked and sell it to some poor sucker who sees it still rising only to watch it plummet and lose him money.

You can also manipulate markets if you have prior data. You can cause buying frenzies and cash out before anyone suspects.

[sarcasmo]

17. Yep, the small investor shouldn't even play this game.

[Spitfire of ATJ]

19. They appeal to greed with the occasional "Rags to Riches" story...

But the norm is being reduced to rags by the rich.

[Lucky Luciano]

14. It's not gambling when the dice are loaded.

[jmowreader]

23. That's because you don't have a computer fast enough

High Frequency Trading in a nutshell:

As a trader you know that someone buying a huge block of stock will cause the price to rise slightly, and that it takes a few milliseconds for an order to be registered in a broker-dealer's system. An HFT firm buys order flow from a BD and enters buy orders for massive volumes in the window between order entry and order acceptance. Then after the price goes up a penny or so, they sell it all. This sounds dumb as shit but if you work in 10 million share increments, you make a pissload of money...and if you do it fast enough you never need your own money to trade with.

This is why I keep saying the financial transaction tax needs to be one cent per share: it's low enough no legitimate trader will complain, but it's high enough to kill HFT. No one will stay in an HFT position to try getting 2 cents per share gain - too much risk of losing your ass if you do.

[RC]

13. Automated computer trading needs to be outlawed.

Make it so a actual flesh and blood human being needs to be sitting at a keyboard doing the actual transactions.

[jmowreader]

24. That would ban a lot of legitimate trading

I am thinking stop loss orders (sell if your stock goes below a preset price) and options trading.

High frequency trading can best be dealt with by taxing it out of existence.

Now...what needs to be banned are some of the esoteric shit they've done in derivatives. Go find the prospectus for the Goldman Sachs Scandal. You will see that they told the potential mark exactly what they were going to do - the term "synthetic exposure to the mortgage market" is used frequently. That means exactly one thing: the CDO made of naked credit default swaps will be used, and only one counterparty makes money. Now, considering that Goldman is probably the best derivatives house on the Street (the infamous The World's Largest Hedge Fund Is a Fraud paper sent the SEC to Goldman for help analyzing Madoff) does anyone really think they'd set up a deal that made them poorer? If it is legal to bet against a security without having a financial stake in it you know it will be abused.

[Marr]

15. It seems to me like the biggest lobby for reforming the big banks should be Wall Street itself.

No one wants to gamble in a rigged casino. The game is so ridiculously stacked now, that it's 1% of Wall Street that's reaping the benefits.

[cantbeserious]

16. The Ultra Wealthy Get Richer - The Rest Of Us Not So Much

eom

[Jim Lane]

18. The role of the University of Michigan should be noted.

Wall Street traders are trying to gain an edge any way they can. Thomson Reuters is a for-profit business that's trying to cater to the market it finds. Yes, their actions are pernicious, but not particularly worse than what you'd expect from decisionmakers in their positions.

The University of Michigan, however, is supposed to be an academic institution, conducting its surveys for the purpose of promoting knowledge. The contract excerpt quoted in the linked article reveals the University entering into a deal with Thomson Reuters by which, presumably for a fee, the University expressly authorizes Thomson Reuters to do a tiered release of the information.

For shame!

[Uncle Joe]

21. Kicked and recommended.

Thanks for the thread, kpete.