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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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.