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“Insider Trading 2.0″ Happens Every Day

26

September, 2013

cash cow

“If I know about a stocks activity a day before, it’s called insider trading.  But if I know about a stocks activity one second before, it’s called high frequency trading.” – The Daily Show’s Samantha Bee in her cash cow suit 9/30/09

Who would have thought that four years after that hilarious Cash Cow skit on the Daily Show, some of our regulators would finally be agreeing with the Cash Cow.  Of course, we’re talking about New York Attorney General Eric Schneiderman’s comments  about high frequency trading that he made at a Bloomberg conference on Tuesday.  In case you missed it, Bloomberg summarized his remarks:

Calling the issue “Insider Trading 2.0,” Schneiderman said the combination of high-speed trading and early data access unfairly sets up a small group of investors to reap enormous profits.

A new generation of market manipulators has emerged,” Schneiderman said. Average investors aren’t “going to invest if they think the markets are rigged,” he said.

Schneiderman said targeting the combination of high-speed trading and early data access is necessary to restore public confidence in the markets.

“When blinding speed is coupled with early access to data, it gives people the power to suck value out of the markets before it even hits the street,” he said today.

The office set up a hotline, 800-771-7755, for confidential reporting of potentially illegal trading activity.

While Mr. Schneiderman’s comments are directed at the latest high frequency trading scandal (the early release of economic news), we think he needs to simplify his probe a bit.  All he needs to do is look at the time differential between the exchange direct data feeds and the SIP (securities information processor) to realize that the leaking of information happens EVERY day.  We wrote about this in our August 28th note titled “Nasdaq Should Halt Trading All Of The Time” where we stated:

“While it is true that the differential in time between the direct feeds and the SIP has been reduced, the fact remains that there is still a time difference. If Bob Greifeld and his fellow exchange bosses halted the market on August 22nd because some investors were getting information that others were not, then considering that a timing difference permanently exists in today’s equity market, shouldn’t they halt the market all of the time?”

We would like to help Mr. Schneiderman with this issue and point him to the statistics that the exchanges themselves put out about quote latency.  Based on 2nd quarter 2013 statistics the NASDAQ  SIP has a quote latency of 1.1153 milliseconds for Tape C stocks while the NYSE (SIAC) run SIP has a quote latency of 0.62 milliseconds for Tape A/B stocks.

If Mr. Schneiderman is upset about the early release of economic data, then we’re sure he won’t be too happy when he finds out that the exchanges have been releasing stock price information to their paying data feed and colocation clients before the public sees it on the consolidated quote.  Heck, maybe we’ll even give his hotline a call today

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