Attorney general promises campaign against high-frequency trading advantages
Press release distributor Marketwired has stopped selling direct access to its service to high-frequency traders in order to prevent high-frequency trading (HFT) firms from receiving information crucial milliseconds ahead of others.
The measure comes amid growing pressure on information providers and others to stop giving privileged access to HFT firms. A month ago, press release distributor Business Wire, owned by Berkshire Hathaway, also agreed to end direct feeds to high-frequency traders.
‘Although providing such distribution to HFT firms complies with the regulatory requirements of our business, we decided to cease providing these direct feeds to [them],’ explains a Marketwired spokesperson. ‘We made this decision to eliminate any perceived advantages gained through technology by certain distribution recipients.’
The decision was made ‘independently and prior to any discussions with the New York attorney general,’ adds Marketwired, while the decision allows the newswire service to ‘continue to serve our customers according to the highest ethical standards that Marketwired embraces.’
The measures from both distributors were praised by New York attorney general Eric Schneiderman, who has pledged to eliminate advantages enjoyed by high-frequency traders and restore smaller investors’ confidence in the markets.
‘Rather than curbing the worst threats posed by high-frequency traders, our markets are becoming too focused on catering to them,’ Schneiderman says in a press release. ‘I am committed to cracking down on fundamentally unfair – and potentially illegal – arrangements that give elite groups of traders early access to market-moving information at the expense of the rest of the market. We call it Insider Trading 2.0, and it is one of the greatest threats to public confidence in the markets.’
Schneiderman says a collection of advantages has the overall effect of allowing HFT firms to make risk-free profitable trades before the rest of the market even has a chance to react to news.
‘As a result, these traders guarantee themselves enormous revenue and force large investors to develop complicated and expensive defensive strategies to conceal their orders from parasitic traders,’ the release continues. ‘In the tiny sliver of time offered by these products, HFT firms obtain a first look at direct-data feeds provided by trading venues. These feeds include pricing, volume, trade and order information, and the firms use sophisticated technology to trade on it before others can possibly react.’
