Warren Buffett today rebutted charges that Business Wire, a Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) subsidiary, gave special advantage to high frequency traders before Business Wire information was available to general investors.
In a February 6 Wall Street Journal article Scott Patterson, author of the algorithmic trading book The Quants, wrote, “High-frequency traders have been paying to get direct access to market-moving news releases, a practice that can give firms the ability to trade fractions of a second ahead of less fleet-footed investors. The traders are getting news releases from Business Wire, which distributes corporate-earnings releases and economic reports such as the Philadelphia Federal Reserve’s monthly manufacturing survey…”
In a CNBC interview today, Warren Buffett said “Business Wire sells to thousands of people. It’s all simultaneous. No high frequency trader was getting information one thousandth of a second before others, but apparently they were working with it faster. They were getting simultaneous delivery, not early delivery.”
Business Wire shuts down HFT offering, saying no violation of SEC’s Reg Fair Disclosure
In a February 20 news release announcing its discontinuation of selling to HFT firms access to what is internally known as its NX feed, the company said, “These traders had absolutely no time advantage in receiving material news from Business Wire, which operates a patented internet delivery network that disseminates news simultaneously and in real-time to all market participants, and in accordance with Regulation Fair Disclosure.”
Levitt not so sure
On February 23, former Securities and Exchange Chairman Arthur Levitt said in a Twitter post Business Wire’s practice may have violated the Regulation Fair Disclosure rules, which came three days after New York Attorney General Eric Schneiderman lauded Business Wire for discontinuing the practice of offering select HFT firms the same access provided to major newswire services.
Issue is not offering service to all investors
HFT expert Eric Hunsader, president of Nanex, a software firm that monitors market activity and was the source of initial reports regarding the Business Wire practice, had attempted to inquire about potentially purchasing access to the market data from Business Wire but his inquiry was not addressed. When asked if Business Wire had hidden the availability of the service from the general investing public, Business Wire spokesperson Neil Hershberg had no comment, referring to a press release noting the practice of selling the data access to a “handful” of HFT firms had been discontinued. “It should have been advertised on the (Business Wire) web site,” Hunsader said, referring to the apparent secretive nature of the service offering.
WSJ explains how it works in article
Providing an example of how such as system worked, the Wall Street Journal article cited a Dec. 5 earnings announcement of Ulta Salon Cosmetics & Fragrance at 4 PM. When the firm announced lower than expected results, $800,000 worth of stock was sold within 50 milliseconds, most significantly before the information was delivered by news services to readers.
According to the report, Bloomberg News issued the release 242 milliseconds after 4 p.m., Dow Jones issued it 464 milliseconds after 4 p.m., and Thomson Reuters Corp. TRI.T -1.32% issued the release about one second after 4 p.m. About 700 milliseconds after 4 p.m., Ulta’s stock reached its closing price of $118 a share on the Nasdaq Stock Market, NDAQ -1.15% which incorporated the orders placed immediately after Business Wire and other news services distributed Ulta’s earnings, according to data analyzed by Nanex LLC, a market-data provider, and people familiar with the trading. Stocks frequently settle a few tenths of a second after 4 p.m. as Nasdaq’s computer systems seek to reconcile all trades, the report noted. “Another issue that should be addressed is the exchanges saying they close at 4 PM but remaining open slightly afterwards,” so HFT firms can trade on the news, Hunsader said.
Delay in newswires decimating information, giving select HFT firms nanosecond jump
Delays between the time Business Wire distributes releases to its clients — select HFT firms and the newswire services — and when newswire services turn around and deliver the information to the public is somewhat standard, the report noted. This points to the quote Warren Buffett gave this morning that “No high frequency trader was getting information one thousandth of a second before others, but apparently they were working with it faster.”
The unaddressed issue is that select HFT firms were given access to the same pipeline as the major newswires, but this access was not publicly available. Sources inside the Chicago HFT community say they wanted access to the information but could not obtain it.
Hunsader also wonders why the SEC didn’t address the issue before the Wall Street Journal report came out and was apparently the motivation for Business Wire to discontinue the service. “Why didn’t the SEC’s Midas system pick this up? They were made aware of the issue well before the WSJ article.”