Federal securities regulators have opened an inquiry into the media company Thomson Reuters and how it releases closely watched manufacturing data to its trading clients, a move that highlights the government’s continued effort to understand the high-speed trading systems that have transformed Wall Street.
Officials from the Securities and Exchange Commission are investigating why certain clients of Thomson Reuters received and traded on the Institute of Supply Management’s manufacturing data ahead of its official release earlier this month. Thomson Reuters has an agreement with the institute, which is privately held, to release the influential survey.
On June 3, as traders were waiting for Thomson Reuters’s 10 a.m. release of the often market-moving I.S.M. manufacturing number, a small group of traders received the data milliseconds before the rest of Wall Street and, because it was disappointing, made rapid-fire, aggressive bets against the market. The traders used sophisticated compuer trading systems to process and trade on the information.
The incident speaks to the increasing importance of speed in the nation’s stock markets. More than half of all American stock trades are now executed by firms that rely on high-speed connections to place and withdraw thousands of orders a second. In order to compete, these traders look for any leg up, including quicker ways to receive market data.
Most providers of market data, including the exchanges, now charge premimums for faster delivery of information. Regulators have been grappling with how to respond to the recent changes in the market and are considering whether, by selectively disclosing data to people who pay more money, the playing field has been unfairly tilted in favor of an elite group of traders. The current inquiry into the relationship between Thomson Reuters and I.S.M. adds to similar issues related to the release of market data and high-speed trading that regulators have been investigating.
Lemuel Brew! ster, a spokesman for Thomson Reuters, said that the company received a phone call from the S.E.C. regarding the premature release and explained to the agency that the early release was due to a “clock synchronization issue.â€
“As part of this conversation, the S.E.C. requested a copy of the contract with I.S.M.,†Mr. Brewster said. “After obtaining I.S.M.’s consent, Thomson Reuters voluntarily provided a copy of the contract with the pricing details omitted.â€
Thomson Reuters has not been subpoenaed for the information nor has it been notified of a formal S.E.C. investigation, a person briefed on the matter said. CNBC earlier reported on both the premature release of the I.S.M. data and the S.E.C.’s inquiry.
