400ms of insider information

High frequency (insider) trading.

Nanex Research has found what looks like insider trading in the natural gas market prior to the release of the US Energy Information Administration's natural gas report. The quirk is that that insider trading happened just 400 milliseconds before the report was released:

On January 31, 2013, approximately 400 milliseconds before the official release of the EIA Natural Gas Report, trading activity exploded in Natural Gas Futures and ETFs such as UGZ, UNG and BOIL. Now that the Feds have stated (as claimed by a recent WSJ article) that they don't think there is merit in prosecuting people who get news information earlier than others by milliseconds, is it any wonder?

It is worth pointing out that the EIA Natural Gas Report comes out weekly (every Thursday at 10:30) and the market reacts within a few milliseconds. This is because the report centers on one number which makes it easy for machines to process and take action.

As Nanex points out, a recent SEC investigation into whether some news organisations gave investors access to economic data "a fraction of a second before the official release time" resulted in no charges being brought. At the time, it was speculated that there were two reasons for that: the first being that such a prosecution would stretch the definition of insider trading, and the second being that it was difficult to conceive of such a head start leading to any measurable advantage.

Insider trading is typically defined as acting on information which has not yet been made public (the legal definitions are far more complex than that, but that's largely owing to the byzantine nature of financial regulation). The problem with prosecuting news organisations for that is that typically, information hitting the newswires is the definition of it being made public. This has caused problems before: last year, Netflix's CEO faced trouble from the regulators for announcing on his Facebook page that the company had had over a billion cumulative viewing hours in one month. Facebook is not, apparently, "public" enough for the SEC.

If one of the newswires publishes information a fraction of a second before the others, that might constitute a broken embargo, or an undesirable leak; but it probably doesn't constitute insider trading, because the very act of publishing made formerly private information public (even the etymology's the same! "Publish" literally means "to make public").

But the second argument was that, in the seconds leading up to a potentially market-moving data release, trading slowed down and waited for the news. After all, there's no one — not even an algorithm — which isn't going to think a trade a fraction of a second before a data release offered at a markedly different price isn't a tiny bit suspicious.

That argument might not hold as much water if Nanex's data is accurate, though. It shows a definite collapse in the price of a natural gas exchange-traded fund (ETF) over the course of a hundred milliseconds. A fall of one per cent — even one which is then followed by an even greater fall once the actual data is released — is not to be sniffed at.

It's not clear who the counterparties in these trades were — who, that is, was convinced to make trades milliseconds before a major data release — but it's pretty likely that they were also algobots. Insofar as this represents a transfer of income from one set of computer-owners to another set, it's not the most concerning news. But it does raise further questions about how the market for information is shaped in the near future, and whether the simple dichotomy between public and not public information can hold up in that new world.

"UNG showing trades color coded by exchange between 10:29:59 and 10:30:04." Chart: Nanex Research

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The footie is back. Three weeks in and what have we learned so far?

Barcleys, boots and big names... the Prem is back.

Another season, another reason for making whoopee cushions and giving them to Spurs fans to cheer them up during the long winter afternoons ahead. What have we learned so far?

Big names are vital. Just ask the manager of the Man United shop. The arrival of Schneiderlin and Schweinsteiger has done wonders for the sale of repro tops and they’ve run out of letters. Benedict Cumberbatch, please join Carlisle United. They’re desperate for some extra income.

Beards are still in. The whole Prem is bristling with them, the skinniest, weediest player convinced he’s Andrea Pirlo. Even my young friend and neighbour Ed Miliband has grown a beard, according to his holiday snaps. Sign him.

Boots Not always had my best specs on, but here and abroad I detect a new form of bootee creeping in – slightly higher on the ankle, not heavy-plated as in the old days but very light, probably made from the bums of newborn babies.

Barclays Still driving me mad. Now it’s screaming from the perimeter boards that it’s “Championing the true Spirit of the Game”. What the hell does that mean? Thank God this is its last season as proud sponsor of the Prem.

Pitches Some groundsmen have clearly been on the weeds. How else can you explain the Stoke pitch suddenly having concentric circles, while Southampton and Portsmouth have acquired tartan stripes? Go easy on the mowers, chaps. Footballers find it hard enough to pass in straight lines.

Strips Have you seen the Everton third kit top? Like a cheap market-stall T-shirt, but the colour, my dears, the colour is gorgeous – it’s Thames green. Yes, the very same we painted our front door back in the Seventies. The whole street copied, then le toot middle classes everywhere.

Scott Spedding Which international team do you think he plays for? I switched on the telly to find it was rugby, heard his name and thought, goodo, must be Scotland, come on, Scotland. Turned out to be the England-France game. Hmm, must be a member of that famous Cumbrian family, the Speddings from Mirehouse, where Tennyson imagined King Arthur’s Excalibur coming out the lake. Blow me, Scott Spedding turns out to be a Frenchman. Though he only acquired French citizenship last year, having been born and bred in South Africa. What’s in a name, eh?

Footballers are just so last season. Wayne Rooney and Harry Kane can’t score. The really good ones won’t come here – all we get is the crocks, the elderly, the bench-warmers, yet still we look to them to be our saviour. Oh my God, let’s hope we sign Falcao, he’s a genius, will make all the difference, so prayed all the Man United fans. Hold on: Chelsea fans. I’ve forgotten now where he went. They seek him here, they seek him there, is he alive or on the stairs, who feckin’ cares?

John Stones of Everton – brilliant season so far, now he is a genius, the solution to all of Chelsea’s problems, the heir to John Terry, captain of England for decades. Once he gets out of short trousers and learns to tie his own laces . . .

Managers are the real interest. So refreshing to have three young British managers in the Prem – Alex Neil at Norwich (34), Eddie Howe at Bournemouth (37) and that old hand at Swansea, Garry Monk, (36). Young Master Howe looks like a ball boy. Or a tea boy.

Mourinho is, of course, the main attraction. He has given us the best start to any of his seasons on this planet. Can you ever take your eyes off him? That handsome hooded look, that sarcastic sneer, the imperious hand in the air – and in his hair – all those languages, he’s so clearly brilliant, and yet, like many clever people, often lacking in common sense. How could he come down so heavily on Eva Carneiro, his Chelsea doctor? Just because you’re losing? Yes, José has been the best fun so far – plus Chelsea’s poor start. God, please don’t let him fall out with Abramovich. José, we need you.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 27 August 2015 issue of the New Statesman, Isis and the new barbarism