In the US and elsewhere it is illegal to profit from information, such as the unpublished accounts of a public company, that is confidential and can move markets. Authorities in New York are now considering whether to extend this principle to unreleased data from influential economic surveys. They should not.
At issue is a twice-monthly survey conducted by the University of Michigan that distils the views of 500 Americans into an index of consumer sentiment, which is watched closely by investors. Under a longstanding agreement with Thomson Reuters, the media company’s subscribers can see the index five minutes before it is published on the University’s website.
Until last week, Reuters had been offering a further two seconds of advance notice to clients who paid extra. After pressure from Eric Schneiderman, the New York state attorney-general, that has been stopped. Mr Schneiderman complains that the two-second edge gave an unfair advantage to high-frequency traders, whose electronic systems could adjust to market-moving shifts in sentiment that mortal traders had yet to see.
It is true that indications of consumer sentiment can move markets. But such information does not automatically attract legal privilege. Institutions that collect data privately are under no obligation either to disclose it or to make their reports available to everyone at the same time.
The financial disclosures of public companies, or official releases of data, are a special case. The information they contain cannot be gleaned from any other source. A market in which different investors gained access to such information at different times would be unfair – and might sow confusion if those in the dark shied away from trading with those suspected of being better informed. But none of this applies to the Michigan survey, which is neither indispensable nor uniquely authoritative.
There is also a case for equal access to economic data collected by public institutions, which must not be sullied by commercial interests. But this hardly extends to universities, which often try to profit from their discoveries.
Mr Schneiderman is right to be alert to the fact that high-frequency trading is altering the way financial markets work and also right to worry about its impact on investors. But the questions raised by these technological advances cannot be settled by hastily coined principles about fair access to information.
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