7/8/13

To Thomson Reuters, Time is Money… And Money Will Buy You Time

Time is Money
Image [cc] Tax Credits
Back in January, Tom Wolfe wrote a Newsweek article called Eunuchs of the Universe where he articulated the new style of Wall Street versus the Wall Street that most of us knew. Instead of a raucous gathering of traders in a pit, scrawling information on sheets of paper and signaling wildly to buy or sell the next trade, today's traders work on computer networks designed to take advantage of milliseconds and use it as a strategic advantage over competitors or to find flaws within the system to nearly guarantee a profit. High-speed networks were optimized and placed along specific geographical corridors in order to have bids, orders and sales conducted ahead of other traders. These days, speed, technology, and out-geeking the next trader is where it's at. A few milliseconds meant the difference between a good deal and a great deal. It was no longer about being Gordon Gekko and the sexy, ruthless player in a pinstriped suit… now the hero of Wall Street would be to find Doctor Who and travel milliseconds back in time to make trades.

Imagine how powerful you could be if you could beat the competition by two-seconds? Wolfe would have had a field day in his article had he known that a mere $6,000 a month could buy you that information a full two-seconds earlier than your competition. I'm sure he would have written an entire chapter on that story and how the geeks could upload financial outlook reports into massive supercomputers and have trades ready to buy or sell a full one-second before the competition even had the report in hand. What a story that would be.

The only problem is... it isn't really fiction at all. Turns out that Thomson Reuters has been doing this very thing with the University of Michigan's Consumer Confidence Index. It pays Michigan an amount North of $1 million each year to release the information five-minutes before UM launches it on its website. The money management companies pay a premium to Thomson Reuters for the information. That practice is well known. It is the secondary practice that goes on that has caught the eye of New York Attorney General, Eric T. Schneiderman. Apparently, a five minute head start over the public is not good enough. A five-minute and two-second advantage has been given to an elite group of about a dozen clients from Thomson Reuters. Schneiderman seems to think that this little group may be receiving an unfair advantage and investigating whether this preferential treatment is a fair and appropriate business practice.

Thomson Reuters claims that the tiered pricing is not illegal and that as a private company it can disseminate the information any way it pleases, so long as it disclosed to those purchasing the information. Schneiderman seems to be channeling his inner Eliot Spitzer on this one and is bringing out the Martin Act to challenge practices that are deemed unfair, even if technically legal. Regardless, it would be naive to think that this type of tiered access is limited to this one report.

Luckily for us in the legal field, we aren't tied to milliseconds like our counterparts in the financial industry. However, what if we could pay a premium to Thomson Reuters to let us know of law suits filed against certain companies a few minutes before they let our peer firms know? Would law firms pay to be on the top-tier of that knowledge? It makes me wonder if anyone on the financial side of Thomson Reuters is brainstorming of ways to bring this practice over to the legal side of the house as a way of enhancing revenues? What could law firms do with a few two-second head start over our competitors? Most of us believe that law firms are far to slow to react to this type of advantage, however, the idea is a fascinating one to contemplate.

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4 comments:

Tony Grgas said...

In reference to the title of the article, it seems to me irrelevant what Thomson Reuters thinks. It's what the market thinks that will decide. If the market thinks that time is money, customers will pay; if not, they won't.

Greg Lambert said...

Thomson Reuters pays $1M+ a year for a five minute head start (which it recoups with its customers getting that five minute head start)... a dozen clients of TR pay and additional $6,000+ a month for a 5 minute and 2 second head start on the market. The UMich report causes the market to move, so having that information ahead of time gives investors an advantage on making decisions ahead of the rest of the market. They are paying... and TR knows they will pay because it gives them an advantage by having information seconds before the rest of the market.

Anonymous said...

If TR buys only a 5 min head start over the rest of the world, how does it give anyone a 5 min + 2 second headstart? It can't sell a greater advantage than it buys.

Tony Grgas said...

Anonymous, it sounds like TR does a fair amount of manipulation of the data to make it usable for its customers. If that's the case, my guess is that they get the data from UM earlier than 9:55 but they don't release it until that time (or 2 seconds earlier).

 

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