Schneiderman: By reestablishing a level playing field and making sure everyone plays by the same set of rules, we can restore public confidence in the markets
(NEW YORK) Attorney General Eric T. Schneiderman today published an op-ed in the Albany Business Review detailing unfair advantages small groups of investors have gained in our financial markets by combining early glimpses of critical data with high-frequency trading – superfast computers that can trade tens of thousands of shares in nanoseconds. He refers to this problem as Insider Trading 2.0. The op-ed also describes steps that Attorney General Schneiderman has taken to rein in the problem and restore public confidence to the markets. The following are excerpts from the op-ed:
ON THE PROBLEM OF INSIDER TRADING 2.0: Small groups of privileged traders have created unfair advantages for themselves by combining early glimpses of critical data with high-frequency trading – superfast computers that flip tens of thousands of shares in the blink of an eye. This new generation of market manipulators has devised schemes that allow them to suck all the value out of market-moving information before it hits the rest of the street.
ON THE NEED FOR A LEVEL PLAYING FIELD: Our markets can thrive when there is one basic set of rule for everyone – from individual investors to pension funds to giant corporations. Give everyone a fair shot at success using their brains, guts and intuition, and let the best succeed. That’s the American way. And that’s what our markets have traditionally offered.
ON A.G. SCHNEIDERMAN’S ENFORCEMENT ACTIONS: My office persuaded Thomson Reuters to stop giving a select group of clients access to the market-moving information in the University of Michigan’s Survey of Consumers two seconds before the rest of their subscribers saw it.
ON THE IMPACT OF INSIDER TRADING 2.0: The information [released by Thomson Reuters] was so powerful that in July 2012, 200,000 shares of an S&P 500 fund were traded in the first 10 milliseconds of the magic two-second window before the survey was released. But one year later, after Thomson Reuters reached an interim agreement with my office to halt the two-second edge, trading on the same fund during that 10-millisecond period plunged to just 500 shares.
ON STOPPING INSIDER TRADING 2.0: It is in the interest of the vast majority of market players who are responsible actors to stop the bad actors who put the markets at risk for personal gain. My office has set up a hotline for financial industry insiders to confidentially report improper or illegal conduct involving the dangerous combination of early access to information and high-frequency trading, and we ask anyone who knows of such wrongdoing to come forward.
Anyone who wishes to confidentially report improper or illegal conduct – be it front-running, trading in illicitly gained confidential information, or selling early access to market-moving data – is asked to call the Attorney General’s hotline: l 800-771-7755.
The full op-ed by Attorney General Schneiderman can be read here.
