Business Wire, a subsidiary of Berkshire Hathaway, has decided to stop giving high-speed trading firms direct access to its service.
The firm gave traders a split-second lead on business press releases and, while the practice is legal, critics say it gave high frequency traders an edge over other investors.
Winnie O’Kelley of Bloomberg News joins Here & Now’s Jeremy Hobson to explain.
JEREMY HOBSON, HOST:
From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.
And that little space between here and and, when I just said that, that actually - those seconds, those milliseconds matter on Wall Street, to those high-speed Wall Street traders. And now, Business Wire, which is a news service owned by Warren Buffett's company, Berkshire Hathaway, is going to stop giving traders access to press releases a split second before the public sees them. Now these traders will have to rely on middlemen such as Bloomberg, Thomson Reuters and Dow Jones to get access to big company announcements.
Winnie O'Kelley is an editor at Bloomberg News. She's with us from New York to discuss. Hi, Winnie.
WINNIE O'KELLEY: Hi there.
HOBSON: Well, first of all, explain how this practice of providing traders direct access to releases has worked up till now.
O'KELLEY: Well, I'll put it in very simple terms. It's a little bit like your Internet access. You can get it from AOL dial up - remember that old-fashioned way...
HOBSON: Oh, yeah.
O'KELLEY: ...or from a cable connection or from my high-speed, very fancy FiOS connection. So a few trading firms had paid to have a direct cable into Business Wire. So they got it super fast, and that was giving them a chance to trade a little bit ahead of the public dissemination of the information.
HOBSON: But why is that little bit ahead? And we're really talking about milliseconds here.
HOBSON: Why is that such a big advantage?
O'KELLEY: Well, the market have changed so drastically just over the last five years. So much of the trading that occurs now is not a bet on the fact that Facebook is going to be worth twice as much tomorrow or next year. It's based on the fact that when the earnings come out, people are going to push the stock up. And if you can be a split second ahead of that and then get out again, you can profit. And that is a huge factor in today's market.
HOBSON: But it's not illegal, right, or at least it wasn't?
O'KELLEY: No. No. You know, I think for Business Wire here - and all fairness to them - it wasn't a big part of their business. And it happened sort of, like, quietly on the side without them, I think, evaluating it. They see themselves as a disseminator of information, and they do allow things like Bloomberg, as you said, and others to have a direct data feed. So when someone wanted to buy direct data feed, they said, OK. In hindsight, I think, they changed their mind when they took a closer look at it.
HOBSON: And when The Wall Street Journal brought it up in a story on the front page last June...
HOBSON: ...and the New York Attorney General Eric Schneiderman came out and called this practice a new form of market manipulation. And he wants regulators to take action.
O'KELLEY: Right. You know, and I think what Schneiderman is really focusing on is a very important moment here. He's saying, any way in which individual investors, the little guys, are at disadvantage to high-speed traders or others, is something, whether it's illegal or not, we should take a very close look at and see if the playing field is even.
HOBSON: Well, how likely is it the regulators are going to take this up?
O'KELLEY: Well, I think Schneiderman has told us, he's going to keep looking into these issue. I think the Security and Exchange Commission in the past has sort of said, well, you know, maybe this isn't really our issue. We don't see a violation of law here. But I don't think it's going to go away. I think it's going to reverberate for a while.
HOBSON: And just give us a sense. At this point, how much of the trading is done by these high-speed computers, and how much is done by, you know, we think of the old movies that have people yelling on the trading floors when they want to buy and sell stuff.
O'KELLEY: Well, actually, there's none of that anymore, right?
HOBSON: None of that.
O'KELLEY: It's all done electronically. And how much the high-frequency traders on - it's kind of what you define as high-frequency trading. And I think the numbers aren't very good, because it's very hard to qualify. But it is a large portion of the trading that now occurs - is done with that purpose. Yeah, somewhere around there, perhaps.
HOBSON: Hmm. Winnie O'Kelley, an editor for Bloomberg News, joining us from New York to talk to us about Business Wire's decision to stop giving traders access to press releases about big deals on Wall Street just a split second before the public gets to see them. Now I guess we'll all be on as level a playing field as possible. Winnie, thanks so much for joining us.
O'KELLEY: Thank you.
HOBSON: This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.