They Blinded Me with Sci… Sci… Science!
Remember those high school physics problems? If a train leaves Washington at 2:00 pm…
A month ago, after the Fed’s decision to not slow stimulus was released a hair early to some high speed traders ahead of the general market (for a hefty fee of course), Nanex put out a piece titled Einstein and the Great Train Robbery. That same high school physics problem was jolted from all of our memories – only it has been updated with “machine readable news” in the place of “train”.
In Einstein and the Great Train Robbery Nanex pointed out how at the exact same time – the same millisecond, trading exploded in futures (Chicago) and in stocks (NYC), which marked a departure from the pattern that occurred in past releases, where stocks reacted first. You see, one would expect stocks to react first, as NYC is closer to Washington DC than Chicago is.
After Nanex’s article, and CNBC’s Eamon Jeavers reporting on CNBC, quite a buzz was created in the general public, who were shocked that Pay for Access had reached such a high level in our financial markets. High Speed Traders were again in the crosshairs of negative public attention, although actually those crosshairs should have been reserved for the organizations selling the early access.
After the Nanex Piece, a major HFT firm, Virtu Financial, put out a well distributed and publicized debunking of Nanex’s piece. Titled Why Nanex is Wrong, the Virtu piece challenged Nanex’s data – claiming that Nanex is using data from the SIP, which is unreliable, and that Nanex’s study relies on clocks at the CME and the SIP, which are likely not synchronized.
Hunsader, undaunted by Virtu’s piece, responded with a second Nanex piece titled Shredding Virtu’s Response With Science. Here Hunsader demonstrated that even using Virtu’s data, the evidence still shows an early release of the Fed announcement – before 2:00pm.
For the last few weeks this war debate of science and speed was at a stalemate – until this past Friday evening, when that stalemate was broken, and a winner to the debate crowned. The Fed announced that it would be changing the security around its news releases, beginning with today’s Fed release at 2:00pm.
We suppose that it is reasonable to assume that procedures were changed at the Fed because there actually was an early release problem, and that Nanex was right.