Here's Why The ABS Insider Trading Scandal Is So Important To The Integrity Of Australian Markets

Getty/Michael Heiman

Financial markets live on the flow of data from organisations like Australia’s Bureau of Statistics and the United States’ Bureau of Labor Statistics.

The data and the information that each economic release contains is pored over by economists, investors and traders alike as they search for information of the next trend in monetary policy, in exchange rate movements or in share prices.

So as Michael Lewis showed in Flash Boys, even a nanosecond has value.

But imagine if you had the data minutes or hours before the release as we covered this morning. The profit you could make is only limited to the size of the positions you could take without, you think, getting caught.

It’s why data is so jealously guarded by organisations like the ABS. The data being released to everyone at the same point is crucial not only for fairness but also because if data is to be issued and traded off the release of that data, it must also contain the message that no one else has it.

Otherwise the integrity of the system is at risk when data can make the Aussie dollar rise or fall a cent, share prices drop by numerous percentage points and expectations of interest rate changes hinge on its release.

It’s also why the Federal Police have charged two men today with insider trading and why the sting is so important. Not only are they alleged to have broken the law but the very integrity of ABS processes when it comes to data release was in question and is likely to now come under scrutiny.

What if the trades had have been done through an offshore broker rather than a local Australian owned and domiciled one? Would these men have even come under scrutiny?

The ABS needs to look hard at the security of its data because with millions at stake, there is always an incentive to break the rules.

This is because as traders and investors wait excitedly – sometimes patiently – millions of dollars in trading and profits and losses swing on each data release.

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