High-speed traders pay to get early earnings reports
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High-frequency traders have been paying to get direct access to market-moving news releases, a practice that can give firms the ability to trade fractions of a second ahead of less fleet-footed investors.
The traders are getting news releases from Business Wire, which distributes corporate-earnings releases and economic reports such as the Philadelphia Federal Reserve’s monthly manufacturing survey, and from Marketwired, a Toronto company that distributes earnings releases and the ADP monthly employment report.
Such direct access isn’t illegal. By paying for direct feeds from the distributors and using high-speed algorithms to crunch data and enter orders, traders can get a fleeting -- but lucrative -- edge over other investors, according to traders and people familiar with the practice. The reason: tiny lags between the time the distributors release the news and when media outlets send them out to the public, including other investors.
Investors typically receive earnings reports and other news releases from media companies such as Bloomberg LP and Dow Jones & Co., a unit of News Corp NWSA +8.68% , which owns The Wall Street Journal, or websites such as Yahoo Finance. Those financial-news outlets get most of these releases from distributors such as Business Wire, which is owned by Warren Buffett’s Berkshire Hathaway Inc. BRK.A +1.81% , BRK.B +2.22% and Marketwired, majority-owned by OMERS Private Equity Inc., an arm of the Ontario Municipal Employees Retirement System.
Business Wire says it doesn’t discriminate between clients in the interest of fair access. “Anyone can get a direct data feed if they want,” including high-speed trading firms, said Tom Becktold, a spokesman for Business Wire, which also distributes releases to financial companies such as fund-management firms, Wall Street banks and retail brokers, according to its website. Company spokesman Neil Hershberg said what happens after Business Wire hands off releases is “beyond our control.”
Some high-speed firms have had direct access to news releases for at least the past few years, according to people familiar with the situation. These firms typically are paying thousands of dollars a month to get the news releases.
The trend, previously unreported, could help explain what happened on the afternoon of Dec. 5, when Ulta Salon Cosmetics & Fragrance Inc. ULTA -0.03% , a cosmetics retailer based in Bolingbrook, Ill., released its earnings.
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