Who does early access to sensitive data really hurt?

Masters of the Universe, or dummies?

The Wall Street Journal reports on the perils of providing early access to sensitive economic data:

The early look at the consumer-sentiment findings comes from Thomson Reuters Corp. The company will pay the University of Michigan $1.1 million this year for rights to distribute the findings, according to the university. Next year, it will pay $1.2 million.

In turn, Thomson Reuters's marketing materials say the firm offers paying clients an "exclusive 2-second advanced feed of results…designed specifically for algorithmic trading."

Clients who pay a subscription fee to Thomson Reuters, which for some is $5,000 a month plus a $1,025 monthly connection charge, get the high-speed feed at 9:54:58 a.m. Eastern time.

Those who pay for Thomson Reuters's regular news services get the report two seconds later. At that point, it swiftly becomes widely available through other news providers as well.

Take a look at what happens to the trading volume in those two seconds:

That obviously makes sense. If you pay thousands of dollars for an advance connection, you're presumably doing to want to act on it. That two-second preview gives anyone who can afford it and some algorithms smart enough to parse the information a huge advantage in the market.

Except that every trade needs a counterparty. That is, if bad data comes out and you decide to sell some shares, someone else needs to buy them. If you know that some people in the market have access to secret data which you will get in less than two seconds, the reasonable thing to do is not trade for the next two seconds. Who are these idiots who make willing counterparties to traders with inside information?

One possibility is that people are leaving buy or sell orders open over the period of the release. So, for instance, if you decide on Monday that you want to buy a share of Acme Corp. for $100 when it's trading at $105, you may end up being stuck with it if the value plunges to $90 in two seconds on Tuesday. Of course, that's still a certain amount of stupidity, but it makes it easier to understand criticism that early access to such data hurts so-called "mom and pop" traders.

But there's another possible explanation, which is that all these trades are between people with early access to the data. We might both think the information is bad, but if you think its worse than I do, I may well be prepared to buy from you – albeit at a price lower than I would have before I found out the news. And if the release is borderline, it's even more likely that the counterparties also have information. Everyone thinks they're smarter than the crowd, otherwise they wouldn't bother trading.

If that's the case, then there are still dummies in the mix; but they're the ones paying thousands of dollars a month for the chance to take a stab in the dark two seconds before the general public.

A robo-trader, maybe. Photograph: Getty Images

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

Show Hide image

Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: www.oldmutualwealth.co.uk/ products-and-investments/ pensions/pensions2015/