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Thomson Reuters accused of market foul play: 16 firms received data early

September 6, 2013   ·   0 Comments

 

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According to Rolling Stone magazine, news and business information firm Thomson Reuters has been accused of selling key economic data to the world’s 16 major banks and hedge funds. The complaint, filed by a whistleblower with the SEC (Securities and Exchange Commission) claims that these customers were acquiring information from 10 minutes to an hour ahead of the rest of the markets.

Thomson Reuters has already been on the radar for similar accusations before, when New York State Attorney General Eric Schneiderman rebuked it for selling important financial data two seconds early to high-frequency algorithmic traders, two seconds being long enough when it comes to computerized trading.

Schneiderman pointed out that “The early release of market-moving survey data undermines fair play in the markets”. Though Thomson Reuters did suspend the two-second alert, it refused to discontinue the general practice of feeding market information to its customers, saying it is within its rights to “distribute non-governmental data” to “fee-paying subscribers”.

The 16 firms in question have not yet been disclosed, but they are said to be well-known to the general public,and their disclosure may bring the scandal to a larger scale. However, the SEC declined to answer any of the Rolling Stone’s questions about the case.

Also, in June this year, more unusual Thomson Reuters activity was discovered by journalist, Simone Foxman, of the global economic site Quartz. The firm appeared to be also giving its customers a release from the University of Michigan Survey of Consumers.

The survey, which contained information about how Americans generally feel about the economy, is essential for financial institutions to make investment choices. Moreover, the Federal Reserve also refers to the Michigan Survey to determine monetary policy. Knowing the results of this survey would put them at an advantage over other investors.

The whole case was made public due to a wrongful termination suit filed by an ex-employee of Thomson Reuters, Mark Rosenblum, who worked with the firm in 2005-2012 and in 1998-2000. While there, Rosenblum became aware of the firm’s unusual practices of selling out information in what can be called three tiers.

The general public would get the info 10:00 a.m. on a certain date each month, while customers with regular subscriptions receive it at exactly 9:55 a.m., and the third group, the “ultra-low latency” subscribers, algorithmic traders who use computer programs to make millions of calculations per second, would get the data two seconds early, at 9:54:58 a.m.

Rosenblum saw this practice as a violation of federal law, however, when he addressed his concerns to his superiors, he was told to stop meddling in  affairs that were none of his business and that he was “sticking [his] nose where it does not belong.” After being ignored by his own authorities, Rosenblum went to the FBI on June 29, 2012, and was fired a month later.

As if in response to this incident, the SEC sanctioned the New York Stock Exchange and its parent company NYSE Euronext with a $5 million fine for similar misconduct regarding the pre-release of data to subscribers, which happened about a month after Rosenblum’s dismissal. In the press release, SEC Enforcement Chief Robert Khuzami said, “Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors . . . That is why SEC rules mandate that exchanges give the public fair access to basic market data”.

This quote was included in Rosenblum’s wrongful termination suit, believing his firing was a violation of the whistleblower protection law and his decision to sort it out with the authorities was protected by the Dodd-Frank reform law.

The fact that major financial firms may get an even earlier start than two seconds suggest that the markets are an extremely uneven playing field, where the general public has nothing to offer compared to powerful insiders given all the information in advance.

However, there are disagreements as to whether the practice of informing subscribers in advance should be deemed illegal. To answer that question it is necessary to learn exactly how Thomson Reuters orchestrated the whole “subscription” procedure and whether it let its ordinary subscribers know that other more powerful firms were ahead of them in access to the data. However, if the Attorney General was interested in just a 2-second head-start, a 10-minute or even an hour head-start would definitely raise his concerns. At any rate, it does question the legality of allowing major financial organizations to get head starts on the rest of the markets.

So far, Thomson Reuters has denied the allegations in Rosenblum’s lawsuit and has no comment on the allegations about major customers receiving data up to an hour early, only saying these and other accusations are “unsubstantiated” and “without merit”.

The Voice of Russia, The Rolling Stone


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