The Best Research Money Can Buy!




About a year ago, a University of Houston Professor name Craig Pirrong, who watched our own Joe Saluzzi talk about exchange glitches on CNBC, responded profanely on his widely read blog – (scroll down to January 12th, 2013).


The biggest huer-and-crier (emphasis on the crying) is Joe Saluzzi of Themis Trading. JJ apparently believes the old mutual non-profit exchanges were freaking charities, like the March of Dimes or something.  Uhm, no…. bat sh*t crazy people like Saluzzi (enabled by folks like the CNBC talking head in the BATS Hit video) take up all the oxygen screaming about how bad the current market structure is and retailing myths about some Golden Age that never was.


We had never heard of Pirrong before his hit piece on Joe because we focus on equity market structure, and Pirrong’s “area of expertise” is speculation and the workings of commodity markets. Still, we had to dig into his background at that point, because we couldn’t understand his venom towards us – we had never heard of him before that point. And we wrote our own blog post titled The Profane Professor Who Loves HFT to highlight his conflicts of interest and lucrative work for the CME.


Let us fast forward to the New York Times Business Section this weekend. David Kocieniewski wrote an article titled Academics Who Defend Wall Street Reap Reward. The NY Times had dug much deeper than we had, and they had come to the same conclusion on Craig Pirrong that we had.  Since 2006 he has been writing letters to federal agencies, and testifying to Congress, that financial speculators and commodity index funds DO NOT drive up prices of physical commodities for consumers.


His opinions are of course welcome in the debate, as are anyone’s opinions, but the NY Times noticed that he always seemed to conveniently leave out the financial benefits he has gotten from exchanges like the CME and large commodity players:


While his university’s financial ties to speculators have been the subject of scrutiny by the news media and others, it was not until last month, after repeated requests by The Times under the Freedom of Information Act, that the University of Houston, a public institution, insisted that Mr. Pirrong submit disclosure forms that shed some light on those financial ties.


While he customarily identifies himself solely as an academic, Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy, according to the disclosure forms.


And when questioned by the NYT about how much money he has been paid by the above parties, Mr. Pirrong replied, “That’s between me and the I.R.S.”


One part of the NYT article was especially interesting. JP Morgan’s Blythe Masters, approached him to write a report for a global bank lobbying group, the Global Financial Markets Association. The report was completed in mid-2012, but not released. Pirrong claimed it was because his conclusions were that banks should be regulated more than other commodity traders – like hedge funds. However, what Pirrong didn’t reveal was that he was paid by both sides of the debate – i.e. the commodity trading hedge funds as well as the banks.


That’s pretty cool! Getting paid to write a report for a client, and also getting paid by other folks to take a differing opinion, is … especially capitalistic. Which side wins? We don’t know; I suppose we would like to see the size of the relative checks received by Craigy…


Academic research for hire is not new – it just is on the rise. This is why it is more important than ever for any research reader or policy maker to fully know and understand all the financial disclosures of research authors. It is also why it is more important than ever to weigh unbiased research heavily in any policy decision making.


For anyone reading this note, again please find this bibliography of market structure and HFT useful, and keep it handy, so you have the ammunition to shoot down the “research” of paid-for shills.

EDITED – Craig Pirrong posted his defense to the NYT article. You can read it here: