Business Wire, which has published corporate news releases in the US for the last half century, will stop selling direct feeds to high-speed traders, amid concerns that the practice gives the firms an unfair advantage over other investors.
Warren Buffett, whose conglomerate Berkshire Hathaway owns Business Wire, stepped in personally to examine the direct sales, fearing that recent publicity around the practice could hurt the company’s reputation.
Business Wire had also been in talks with Eric Schneiderman, New York attorney-general, whose office is investigating the distribution of financial data to see if high-frequency trading (HFT) firms are finding ways to jump ahead of other investors.
In an era of computer-driven trading and superfast communications, a split-second advantage in receiving data can open an opportunity to profit from the market moves that may happen when other players receive the information.
In the case of corporate earnings statements scheduled for release after the end of the trading day, a direct line from Business Wire meant some firms were able to trade ahead of the market’s official close, according to the research firm Nanex.
Most investors access Business Wire releases through an intermediary data service, such as Bloomberg or Dow Jones. The Wall Street Journal, a subsidiary of Dow Jones, published a story highlighting Business Wire’s direct sales to HFT firms on February 6.
“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,” Cathy Baron Tamraz, Business Wire chief executive, said in a statement on Thursday.
”However, in discussions that have taken place with a few of our clients, we learnt that the article may have caused some misperceptions, and that was of deep concern to us.”
Ms Baron Tamraz said the decision to halt the sales was taken “in consultation” with Mr Buffett.
The sales were not illegal or in contravention of regulations on market fairness, she said.
Nanex examined the trading in certain stocks with earnings released at 4pm on behalf of T Rowe Price, a fund manager that became suspicious.
Eric Hunsader, founder of Nanex, said: “The market still has a problem. It is not closing at exactly 4pm. Trades bleed over for almost a whole second and that will affect the close because earnings are getting released at almost exactly 4pm.
“Just because Business Wire has stopped this practice, doesn’t solve the problem. The best solution is to require earnings to not be released until one minute after 4pm.”
Mr Schneiderman had been discussing Business Wire’s data dissemination practices since the company itself raised the issue with his office in October, according to sources familiar with the talks, which were described as informal and cordial.
“Business Wire’s decision to voluntarily step forward and stop selling its clients’ information directly to high-speed traders is a tremendous victory for our effort to eliminate advance trading on market-moving information and a demonstration of Business Wire’s commitment to being a responsible industry leader,” he said.
The attorney-general has labelled some HFT practices as “Insider Trading 2.0”.
Following his intervention last year, Thomson Reuters, the media and financial data provider, stopped its practice of releasing a consumer confidence survey created with the University of Michigan two seconds early to traders willing to pay extra to obtain it.
Additional reporting by Alan Rappeport