A study by Singapore-based researchers and a quantitative report by high frequency trading professional Eric Hunsader come to the same conclusion: Privileged traders are receiving information before most of the market. The difference between the two is that the research from Gennaro Bernile, Jianfeng Hu and Yuehua Tang at Singapore Management University looks at the issue from well before the release, expanding the study time horizon while Hunsader, typically, is focusing on the real short term: milliseconds.
Large volume of buy and sell orders ahead of Fed data release: Singapore report
The Singapore study, quoted in a Bloomberg article, noted abnormally large orders just before the release of the Federal Reserve (Fed) unemployment numbers. The large volume of buy and sell orders in one direction – most often the right direction – might have tipped off the researchers. The large trade imbalances were “statistically significant and in the direction of the subsequent policy surprise,” the report said.
The study, titled “Can information be locked up? Informed trading before macro-news announcements,” estimates that profitability from obtaining early information from the Fed meeting can range as high as $256 million.
The Bloomberg article did not indicate exactly how the Fed information was being leaked, but noted changes had taken place when a tightening of the lock up period occurred. Journalists receive access to the unemployment numbers 20 minutes before the official release of the data and are not allowed to send reports until after the report is released. Under the new rules, tighter restrictions on communications devices and a highly supervised embargo will be in place.
One man HFT army
Hunsader, a one man HFT crusader, posted on his market monitoring company’s web site last year a paper that agrees with Hunsader’s findings that simultaneous release of Fed data from exchange server locations provides speedy traders the data quicker than the general market. One issue is that the data is being released from the server facility, so in effect the process is being engineered to favor firms who pay significant fees to pay to receive information and trade ahead of the general market.