New York Attorney General Eric Schneiderman drew a line in the sand at the Bloomberg Markets 50 Conference today. The line is between him and all the high-frequency traders that get an advantage by receiving key market information early.
It’s a thin red line.
“When blinding speed is coupled with early access to data, it gives small groups of traders the power to manipulate market movements in their own favour before anyone else knows what’s happening,” said Attorney General Schneiderman. “They suck the value out of market-moving information before it even goes public. That’s ‘Insider Trading 2.0,’ and it should be a huge concern to anyone who cares about the markets and the free flow of capital on which our economy depends.”
If this continues, he added, no one will trust the markets anymore. No one will invest.
This has become a major issue over the last year. Most notably, Simone Foxman at Quartz broke that there was an agreement between the University of Michigan and Reuters that allowed Reuters to leak data early to privileged (paying) customers.
After that, Schneiderman told the audience at Bloomberg Markets 50, the New York attorney general’s office started investigating the matter itself.
“The power to skew the markets was exactly the ‘service’ that Thomson Reuters provided to select customers,” Mr. Schneiderman said.
Today, CNBC reports that some traders got news of Ben Bernanke’s crucial decision not the taper $US85 billion worth of monthly bond buying before everyone else.
To high-frequency traders, said the AG, that is what separates the “smart money” from the rest of us, the “dumb money.”
“A lot of us here are probably part of the ‘dumb money’ because that includes everyone who doesn’t have a supercomputer capable of flipping tens of thousands of shares in nanoseconds and access to market-moving information just a tiny bit ahead of everyone else,” he said.
So all together it’s not hard to see why Schneiderman’s office is making it a priority.
Schneiderman is no slouch either. He was one of the attorneys general that most vigorously pursued banks for mortgage fraud in the (ongoing) aftermath of the housing crisis. Before that he was a New York state senator known for bringing lawsuits against corporations and individuals that hurt his constituents.
Plus, since the age of Eliot Spitzer, the New York attorney general’s office has been ground zero in the state for the prosecution of financial fraud.
So we expect to see some results.