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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.