Apr 03 2014

The Wire

The Wire is a classic scam made famous by The Sting.

It’s based on Front Running, that is, geting information information before your customers and using it to extract money from them.

I defy you to find any difference between that and High Speed Trading.

Wall Street Rips Off ‘The Sting’

By Matt Taibbi, Rolling Stone

POSTED: July 9, 2013 12:55 PM ET

It turns out that in recent times, if you paid them an extra subscription fee of a few thousand dollars a month, Thomson Reuters would allow you access to the Consumer Confidence data a full two seconds earlier than the rest of its subscribers – at 9:54:58 a.m., as opposed to 9:55:00 exactly.

The two-second head start allows high-speed traders to plunge into the markets en masse and retreat all the way back again before most of the world sees this market-altering economic data.

As my friend Eric Salzman joked, the two-second head start is a scheme taken straight out of The Sting, where the “hook” was early access to the results of an out-of-state horse race. All that’s missing is Robert Shaw placing his bet: “Five hundred thousand dollars to win. Lucky Dan!”

There’s a reason why high-frequency trading is such a lucrative business. With the tiniest head start on market-moving data, computerized traders can make giant piles of money. And as others have reported, the Thomson Reuters consumer confidence survey isn’t the only economic data mine to which traders can buy early access.

Deutsche Borse sells access to its Chicago Business Barometer three minutes early to anyone willing the relatively modest sum of 2,000 Euros a year.

Meanwhile, the Institute for Supply Management teamed up with Thomson Reuters to also sell a kind of enhanced access to the results to a monthly survey of purchasing managers (which measures both manufacturing and non-manufacturing industries). The ISM releases the data to everyone at 10:00 a.m. once a month, but those who pay extra get the data in a form that’s a few ticks easier for computer trading algorithms to read and digest.

It’s bad enough that this goes on out in the open, but part two of this joke is that nobody’s ashamed of it in the slightest. In fact, Thomson Reuters threw the P.R.-office version of a hissy fit today after Schneiderman closed shop on their neat little revenue stream. The firm refused to permanently end the practice and defiantly insisted upon their right to sell data to whomever they want, whenever they want.

Yes, there’s a socially beneficial activity, helping your customers make “better informed trading and investment decisions” two seconds faster than your other customers (read: suckers). Clearly, someone who wants to buy a two-second head start is doing so because he or she needs those extra two seconds to soberly digest market data, not because he or she wants to massively front-run the rest of the investing public using high-speed computers.

Michael Lewis talks about it in Flash Boys: A Wall Street Revolt

CNBC: The Fight that stopped Wall Street

Yes, let’s talk about Confidence Fairies.

Scam artists and Con Men (you do realize the ‘Con’ in ‘Con Man’ stands for confidence?).  Thieves and Liars.

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