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Journalist Matt Taibbi of Rolling Stone magazine reported September 5th,Thomson Reuters has provide sensitive market information to certain financial institutions before everyone else thus, assisting investors with front running of the markets.
Dr. Bill Black, an associate professor of Economics and Law at University of Missouri-Kansas City discussed the impact of Taibbi's report with Independent News Resource - The Real News Network producer Jessica Desvarieux on September 13, 2013.
Professor Black stated University of Michigan contracts with New York, NY based Thomas Reuters organization. Thomson-Reuters provided select clientele for a fee, to gain from two second or up to an hour advantage on a publicly traded stock expected performance on New York Stock and Chicago Merchant Exchanges.
"What we know that Michigan agreed to do in its contracts with Thomson Reuters was to give certain clients who paid extra money a two-second advantage in how soon they would get that information. Now, that might not sound like much, but these are for folks who are engaged in what is known as hypervelocity trading or hyperfrequency trading. So they actually trade in under a millisecond, under a thousandth of a second," said Black.
So this is like two years' worth of, you know, advanced information in terms of how fast these guys operate. That's the part we know."Insider trading occurs when material information nonpublic trading information is provided by individuals or organizations processing a special knowledge. The actions create a unfair trading market place to other investors who fail to have access to such knowledge. Illegal insider trading also includes tipping others a entity has access nonpublic information, such as stock trading data.
Professor Black highlights at least sixteen financial institutions from Taibbi's report received up to an hour advantage of company stock information before the entity was open for trading on the public exchange market.
"This is the one that the article says they believe is happening--is that there is a group of 16 banks that are even more....And they get the information potentially as much as an hour before. The reason they would wait is, of course, things might change, so that they would wait just before the broader group of front runners who's about to operate, and they can go in and make a killing there," Black stated.Front running the stock market is the unethical practice of a broker trading an equity based on information from an analyst before normal clients have access to a companies financial stock exchange data. Black described how Thomson-Reuters in partnership with the University of Michigan front-ran a two-second and up to an hour advantage of stock data for certain investors.
"And we've just discussed front running, but front running isn't the only way the hyperfrequency traders operate. The recent studies from people who have been in the business say that they deliberately create congestion to block other people's trades and to deliberately send false price signals to distort the market. So this is a form of market manipulation, Professor Black explained.
"So it's presumably some combination of this front running and this deliberate shafting of your competitors through market congestion and false price signals that is going on. Now, when Thomson Reuters was discovered to have been selling this insider information to favored clients--this is the two-second advantage--the New York attorney general said that this is outrageous, it will, you know, harm the markets, and threatened to take action.According to The Real News Network report, Professor Black contacted Ann Arbor based University of Michigan to inquire its continuing relationship with Thomas-Reuters. Professor Black stated during the TRNN interview his request for explanation of Thomson-Reuters actions to has not been returned by officials at Michigan's top-ranked publicly financed educational institution.
Thomson Reuters stopped selling the information on the two-second advantage, but asserted that it had a legal right to do so," Black stated.