This morning, Consumer Confidence numbers smashed expectations rising to a five year high.
But a quarter of a second before the number was out and euphoria set in, there was some shady trading going on in the SPDR S&P Sector ETF (SPY), the e-Mini (electronically traded futures), and in hundreds of stocks, according to Nanex, a market research firm.
On May 28, 2013, about 1/4 second before the expected release of the Consumer Confidence number, trading exploded in SPY, the eM ini and hundreds of other stocks. Even more interesting, activity exploded just 1 millisecond earlier in the futures (traded in Chicago) than stocks (traded in NYC). The speed of light separates information between Chicago and NYC by at least 4 or 5 milliseconds. Which means this was more likely the result of a timed trading in both futures and stocks, rather than a arbitrage reaction between the two.
We found no other instances of early trading in the 11 previous monthly releases of the same Consumer Confidence data,
Nanex ultimately concluded that this was most likely a case of “banging the beehive” rather than someone having inside information, but that’s really no reason to feel relieved.
“Banging the Beehive” is a term that traders use to describe what happens when a high frequency trader sends out a barrage of orders before right before a key event (like a report). This impacts price, and forces those who’ve already put their orders out to put out new orders to adjust. All of this creates volatility, which high frequency traders love.
The problem is that other traders don’t love it. In fact, there’s been so much “banging the beehive” before the weekly Natural Gas Storage Report that traders have been exiting the trade entirely.
Check out the chart of all this activity below, from Nanex: