Wall Street Banks Obtain Market Data Ten Minutes Before Everyone Else

JESSICA DESVARIEUX: Welcome to The Real News
Network. I’m Jessica Desvarieux in Baltimore. And welcome to this edition of The Bill Black
Report. Matt Taibbi of the Rolling Stone magazine
has reported that media company Thomson Reuters has been providing sensitive market information
to certain financial institutions before everyone else, allowing them to front run the markets. Now joining us to discuss all this is Bill
Black. Bill is an associate professor of economics and law at University of Missouri-Kansas City.
And he’s also a regular contributor to The Real News. Thanks for joining us, Bill. BILL BLACK: Thank you. DESVARIEUX: So, Bill, can you just explain
for our viewers what exactly is front running? And can you give us a bit of background to
this story? BLACK: Front running can be either that you’re
trading and you know that your clients are going to be buying or selling something, and
you trade ahead of them to take advantage to what’s going to happen to prices, or in
this case you get market information before everyone else does and you get to trade in
advance on that specialized information, in which case you have an enormous advantage. DESVARIEUX: And what did Thomson Reuters do? BLACK: Thomson Reuters partnered with the
University of Michigan, which is where I spent seven years studying and got two of my degrees.
And the University of Michigan has been famous for 50 years for its research in a particular
area, and this particular subset is a survey of business confidence. And this survey of
business confidence is used all over the world as one of the leading indicators of what’s
going to happen economically. So places like the Federal Reserve, in deciding how to move
interest rates and such, look very heavily at this Michigan report. And what we know that Michigan agreed to do
in its contracts with Thomson Reuters was to give certain clients who paid extra money
a two-second advantage in how soon they would get that information. Now, that might not
sound like much, but these are for folks who are engaged in what is known as hypervelocity
trading or hyperfrequency trading. So they actually trade in under a millisecond, under
a thousandth of a second. So this is like two years’ worth of, you know, advanced information
in terms of how fast these guys operate. That’s the part we know. What Matt Taibbi’s story reveals is that other
people have been studying trades just before that two seconds kicks in. And what they find
is an extraordinary volume of trading just before that two-second advantage would kick
in. And that means one of two things is happening.
One could be that somebody is leaking the number from the University of Michigan or
from Thomson Reuters to somebody who is using that information to out front run the front
runners. And the second thing that could be happening–and this is the one that the article
says they believe is happening–is that there is a group of 16 banks that are even more–you
know some pigs are more equal than others. Well, these are the hogs that are even more
unequal, and they get the information potentially as much as an hour before. And the reason
they would wait is, of course, things might change, so that they would wait just before
the broader group of front runners who’s about to operate, and they can go in and make a
killing there. And we’ve just discussed front running, but
front running isn’t the only way the hyperfrequency traders operate. The recent studies from people
who have been in the business say that they deliberately create congestion to block other
people’s trades and to deliberately send false price signals to distort the market. So this
is a form of market manipulation. So it’s presumably some combination of this front
running and this deliberate shafting of your competitors through market congestion and
false price signals that is going on. Now, when Thomson Reuters was discovered to
have been selling this insider information to favored clients–this is the two-second
advantage–the New York attorney general said that this is outrageous, it will, you know,
harm the markets, and threatened to take action. Thomson Reuters stopped selling the information
on the two-second advantage but asserted that it had a legal right to do so. So I’ve done a follow-up to the University
of Michigan and said, why are you still doing business with people like this who are creating
a system that is designed to aid and abet people who are front running and who are manipulating
the market? Well, why would a public university do these things? You know, I just sent in
that request today. I certainly haven’t gotten any response. But Thomson Reuters is threatening to do this
again. And other entities were doing it. And so, for example, the United States government
has ceased to give the press heads-up that–it used to give them a half-hour heads up on
certain things, because that information was leaking into the markets, presumably, again,
because somebody was bribing the reporters to get the information early, and they were
trading on that information. So other groups, like the U.S. government, are cleaning up
their act, and it’s certainly time for Thomson Reuters and the University of Michigan to
clean up their acts as well. DESVARIEUX: Okay, Bill. Just really quickly,
can you name some of these favored clients and those 16 banks that you mentioned? And
also, how does this affect everyday people? You mentioned market manipulation. How is
this going to play into people’s pensions, for example? BLACK: Well, first, we don’t know who was
doing it, because that’s kept secret. And that’s one of the problems. The rumor, as
reported in Matt Taibbi’s article, is that the sweet 16 are the ultralarge financial
institutions and big players in the market. Why is this apparently for the two-second
advantage people were paying about $6,000 a month? Now, I don’t know if that sounds
large or not to viewers. It’s actually–compared to how much money you can make, it’s trivial.
In other words, Thomson Reuters and University of Michigan not only sold their integrity;
they sold it dirt cheap. So they’re really moronic in what they were willing to do. What does it mean for the rest of us? Well,
the rest of us aren’t traders, and we shouldn’t be traders. This is one of the reasons why
daytraders is insane practice and you should not do it. But this high-frequency trading
is now vastly bigger than the regular traders. And very bad things happen in this. Some people
may remember the flash crash, which was driven in part by this. But more generally, there’s
a very suspicious series of activities where most of the bids that they make make no sense
in terms of normal economics, and then they just get canceled immediately. And this is
why market participants say they’re using them to manipulate the markets by causing
congestion. That will make the markets less efficient, and it will make them more vulnerable
to crashes and such. So it’s bad for all of us in terms of deteriorating the markets and
exposing us to more crises. DESVARIEUX: Very, very interesting story.
Thanks so much for joining us, Bill. BLACK: Thank you. DESVARIEUX: And thank you for joining us on
The Real News Network.


  1. Remember, a long time ago, we were taught in school that Capitalism was the best and certainly, the Fairest economic system ever devised?
    We took that to mean "Best and Fairest" system for everybody. We just did not realize that there were multiple meanings… BEST meant that it could be easily exploited and cheated; FAIREST meant that only the very rich can enjoy it's benefits!
    Ironically, most of the World's people are victims of Capitalism, and, sadly, some of it's staunchest supporters!

  2. Sounds like insider trading. From the old days of telegraph communication I heard a story of men in NY betting round by round on the results of a prize fight taking place in the mid west. Round by round the result were telegraphed in and men were betting.

    Some guys paid off the telegraph operator to give them the result and delay giving it to the general betting public. With the advance knowledge they had a greater chance of winning than those without the advance information.

  3. This is common knowledge to anyone who used to be involved with day-trading. That industry doesn't exist anymore because its just advanced algorithm super-computers shifting variables with each other.

  4. welcome to history as molded by the capitalist system. enjoy your stay. the system has never been about anything but the accumulation of wealth by a very tiny group of people. youre right, its a great and fair system for them. not for the rest of the population. just as you are an individual and deserve individual rights only insofar as youre a capitalist. language in an economic system predicated on exploitation and propaganda will always have a double meaning. one of which is hidden to the pop

  5. As of 2011 Rick S (Rep) is governor. Granholm (Dem) was governor for the two previous terms. What difference does that make?
    Was it a Rep or Dem that got rid of Glass Steagall?
    Was it a Rep or Dem that renewed the Patriot Act?
    Was it a Rep or Dem that signed the NDAA?
    Is it a Rep or Dem who is trying to add the TPP to his legacy?
    Finally, what is the difference between a Rep and a Dem?

  6. Corporate Establishment Crime Syndicate Disorder, of UNholy Roman Zionist Empire. It's hopelessly corrupt. Disavow, Disengage & Decentralize. It's going to implode.

  7. Crooks without real & practical, productive life skills to trade would stick out like the useless, stinking parasites they are, in a naturally decentralized society, based on local Community Choice, Liberty, Justice & Community Banks. Fractal Sovereignty! No more support for central Fed enforcement of exploitation! They are criminals. Remember, Taxation without Representation, let alone High Tech Surveillance & the threat of Indefinite Detention or Assassination, triggered the 18th c Revolution.

  8. And why does this not surprise me? There is no honesty within the world of banking etc. These people did not get rich due to their skill. They should be locked away and have everything they and their families own, confiscated.

  9. The real fixing of the market is in the 16 major banks computers 'high frequency . Just one of these computers can flood the market with thousands of bids and asks in less than a hundredth of a second. One of these computers can-does set off the others, producing more thousands of bid asks. They have to power to stop the market in its tracks – overload it with trades where ever they want, then they run back the other way. Making money on both ends before a person can even reacts. Legal Theft

  10. while bill says michigan university sold their integrity dirt cheap for only six thousand dollars a month, it seems to me he should look for kick-backs on their side from those who are "making a killing"!!!

  11. like in Casablanca.." Im shocked, SHOCKED to find out there's gambling going on in this establishment !! " …C'MON man..don't play their game and you WIN

  12. and once they have accumulated a large enough percentage of the wealth then the inflation hammer will hit and we will have a new permanent "royalty" based on hereditary wealth.

  13. What people are missing is anyone who pays is eligible for the information. I do not see how a 2 sec advantage leads to substantial profitability. Anyone who has any knowledge of the market knows that volumes and bid / ask sizes drop ahead of important announcements.
    That said front running does occur and happens very differently in the OTC market because it is more or less an oligopoly. However I do not see how it is even feasible manipulate markets where there are millions of participants.

  14. I did not understand allhe said. I hope he did. Am not sure if she did. We certainly can figure out that the system is rigged for us to fail. It should be patent that #collapse is coming. @Peta_de_Aztlan

  15. All the large trading houses know where people have placed their stops they can see them. What they then do is run the market to peoples stops and most people do it on nice round numbers, knock them out of the market and buy it back to make their killing or vice a versa depending on where the suckers are trading short or long. It's a rigged system. For small traders this is way worse than what is reported here.

  16. The SEC, which you seem to support is the vehicle the banks use to get this done. They block all legislation from individual court cases. And create a simple easy point for any corporation to infiltrate.

    Own thousands and thousands of judges. Or a couple top members in the SEC, EPA etc.

    Thanks for making fascism easy.

  17. Move all "money" into things that you can touch. Ground, Grub, Gold and Guns. Along with a "faith" you will get by.

    The "markets" are a way for you to be robbed, get out before all you own is gone.

  18. all financial and commodity markets are rigged.

    if you have the money to lose, you will lose it by being ripped off in those markets.

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