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.

Photo: Getty
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On Brexit, David Cameron knows exactly what he's doing

It's not a dead cat - it's about disarming the Leave campaign. 

If you’re explaining, you’re losing. That’s the calculation behind David Cameron’s latest entry into the In-Out (or Remain-Leave in new money) battle. The Prime Minister has warned that were Britain to leave the European Union, the migrant camp at Calais – popularly known as “the Jungle” – could move to Britain. But Eurosceptic campaigners have angrily denounced the remarks, saying that there’s little chance of it happening either way.  

Who’s right? My colleague Henry Zeffman has written a handy explainer of the ins and outs of the row, but the short version is: the Eurosceptic campaigners are broadly right.

But the remarks are very far from a gaffe by Downing Street or Cameron, and they aren’t a “dead cat” strategy – where you say something offensive, prompting a debate about that instead of another, trickier issue – either.

Campaigners for Remain have long been aware that immigration remains their glass jaw. The line wheeled out by Cameron has been long-planned. Late last year, senior members of the In campaign discussed what they saw as the danger points for the campaign. The first was a renegotiation that managed to roll back workplace rights, imperilling the support of the Labour party and the trade unions was one – happily avoided by Cameron’s piecemeal deal.

That the deal would be raked over in the press is not considered a risk point. Stronger In has long known that its path to victory does not run through a sympathetic media. The expectation has long been that even substantial concessions would doubtless have been denounced by the Mail, Telegraph and Sun – and no-one seriously expected that Cameron would emerge with a transformative deal. Since well before the general election, the Prime Minister has been gradually scaling back his demands. The aim has always been to secure as many concessions as possible in order to get an In vote – but Downing Street’s focus has always been on the “as possible” part rather than the “securing concessions” bit.

Today’s row isn’t about deflecting attention from a less-than-stellar deal, but about defanging another “risk point” for the In campaign: border control.

Campaign strategists believe they can throw the issue into neutral by casting doubt on Leave’s ability to control borders any better. One top aide said: “Our line is this: if we vote to leave, the border moves from Calais to Dover, it’s that simple.” They are also keen to make more of the fact that Norway has equally high levels of migration from the European Union as the United Kingdom. While In will never “own” the issue of immigration, they believe they can make the battle sufficiently murky that voters will turn to the areas that favour a Remain vote – national security, economic stability, and keeping people in their jobs.

What the row exposes, rather than a Prime Minister under pressure is a politician who knows exactly what he’s doing – and just how vulnerable the lack of a serious heavyweight at the top makes the Leave campaign(s). Most people won't make a judgement based on reading up the minutinae of European treaties, but on a "sniff test" of which side they think is more trustworthy. It's not a fight about the facts - it's a fight about who is more trusted by the public: David Cameron, or Iain Duncan Smith, Chris Grayling or Priti Patel? As one minister said to me: "I like Priti, but the idea that she can go against the PM as far as voters are concerned is ridiculous. Most people haven't heard of her." 

Leave finds itself in a position uncomfortably like that of Labour in the run-up to the election: with Cameron able to paint himself as the only option guaranteeing stability, against a chaotic and muddled alternative. Without a politician, a business figure or even a prominent celebrity who can provide credibility on the level of the Prime Minister, any row about whether or not Brexit increases the chances of more migrants on Britain’s doorsteps helps Remain – and Cameron. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.