Traders are rethinking how they react to one of the market’s most important pieces of economic data, after the US government announced curbs on computerised high-speed trading.
The Department of Labor works hard to keep its monthly jobs report, which acts as a gauge for the health of the US economy, under wraps before its scheduled release at 8.30am on the first Friday of every month.
For traders and investors, the number is the most highly anticipated in the global data calendar, and can lead to some dramatic market moves. The main way for them to see the number is through newswires such as Bloomberg and Thomson Reuters, which churn out the data at high-speed on specialist terminals.
But on Thursday the Bureau of Labor Statistics unveiled a radical new plan that will mean computers are banned from the “lock-up” rooms where journalists prepare reports on economic figures, ready to publish the instant the embargo lifts.
From March reporters will be restricted to pens and paper, and will be able to publish stories electronically only once they leave the room; the rest of the market will have to rely on the BLS website, emails or Twitter feed.
“The non-farm payrolls release has been one of the most impactful numbers [for] big markets like equities, rates and bonds,” said Brad Bailey, research director at Celent, a capital markets consultancy. “If you think about the massive traders of rates in the market, it’s a very high-frequency business. They are very reliant on ultrafast data on the BLS.” The government agency will ramp up its ability to handle heavy traffic, he predicted.
Some traders privately welcomed the bureau’s move, saying they have shied away from offering prices in financial instruments such as futures around the time the jobs numbers were published, fearing that aggressive high-speed traders with a split-second lead against them on the data were picking off their old, uncompetitive quotes.
A study by the European Central Bank last year into high-frequency trading found liquidity worsened and prices deteriorated around key data releases as traders anticipated the risk of speculators “sniping” their stale quotes.
“Any decision that levels the playing field is a step in the right direction,” said Kjelle Blom, chief operating officer of Optiver Europe, a Dutch market maker.
Bloomberg, majority-owned by the billionaire and Democratic nominee Michael Bloomberg, charges thousands of dollars a month for its data feed, and more for a high-speed version.
Explaining the decision, William Beach, the bureau’s commissioner, said high-speed trading technology gave a “notable competitive advantage” to market participants who have a few microseconds’ head start.
“Unlike some media organisations with computer access in the current lock-up, the general public does not have up to 30 minutes before the official release time to digest the data,” he said. Bloomberg and Thomson Reuters declined to comment.
Even so, executives expect new commercial opportunities for companies that can collect, clean and distribute the data quickly. “Newswires will quickly adapt because for the business model of a news outlet, there is just as much incentive to be as fast as you can as the high-frequency trader. Both will want to be first and fastest,” said Kevin McPartland, head of market structure and technology research at Greenwich Associates.