This information about Deutsche Börse making use of NTKN technology to provide “the fastest economic data for algo traders”prompted an email exchange with an interested reader.
At least for me it is now clear that NTKN, CEP News etc are/were mainly in service for algorithmic traders.
I am not convinced that their motive was to release data before scheduled release time. Only mistake you can make will be fatal. Criminal charges and investigation will find you easily guilty when early release is discovered . And what´s the point of ending up behind bars? You want to make money, therefore you need a more sophisticated and clever strategy.
I gravitate more around theory that being in lockups gives you extra time to work with your strategy, trading platform and formating the data in the way you want it to be presented. You can see the headlines or figures in advance. Ok, it is bad that you can not report this valuable information to your trader immediately, but no need to do that anyway. If you can prepare your strategy in lockups and send it to your trading platform millisecond after publishing is allowed, then you are ahead of other market participants.
I am not informed how lockups practically work and how journalists actually prepare data for publishing. My theory is not correct when journalists in lockups can only prepare and publish data as plain text. My theory is more correct when journalists can attach meta data, tags etc information to plain text. If they are allowed to send out computer codes and elementized feeds instead of plain texts (and especially if journalists are not obliged to show results of their editing to supervising officials in lockups, they can edit data as they want). Basically like this Dow Jones service here.
Let´s say News Service 1 publishes FED´s statement in plain text:
Number of Pages: 1
Number of Paragraphs: 7
Number of Words: 427
Number of Characters: 2848
And that´s it. Absolutely plain and simple.
Let´s say News Service 2 can publish FED´s (and any other release) as elementized feeds. This news service can send out codes not limited in length. This news service can add as many keywords or tags to any word or figure in the statement. Even 100 million if neccessary. This news service can describe impact for different assset classes in published news feed.
If allowed to operate that way, it´s a tremendous advantage to traders.
I suspect you are basically right.
However, it still raises a number of questions for me:
Wouldn’t Dow Jones and Bloomberg be quick to catch on and catch up?
Why do the government agencies let in fake news organizations that are essentially fronts for proprietary traders given that this is a violation of their own policies?
Why is the FBI investigating? (Answer could just be that the FBI is clueless)
And my correspondent replied:
Actually Bloomberg and DJ have elementized feeds. But difference between Bloomberg and smaller news providers is access to the person who actually prepares data in lock up. It is dumb to expect that you can approach Bloomberg´s journalist and ask “Y0y0y0y0y! Look, we have large position in US Treasuries! Please insert following code into your feed:
if “Nonfarm Payroll number” is > 100 000, then buy 5000
else if “Nonfarm Payroll number” is > 60 000 and < 100 000 do nothing
else if “Nonfarm Payroll number” is < 60 000 then sell 2000 Pleaseeeee!”
But you can ask the same question from CEP´s “journalist. Other algorithmic traders do use Bloomberg´s and DJ´s feeds but they don’t have any impact on the quality or interpretation of news feed. They have to accept it and take it as it is. If journalist is dumb or clueless what data actually moves markets (or my funds´s positions), then journalist won’t pay any attention to important nuances and models used by algorithmic traders either will act incorrectly or too late to be first and make money. Just as Jump says: “At Jump, we understand that even the best strategy will fail if hindered by inferior implementation.”
FBI probably has reason for investigation, but government agencies are definitely naive. They should accept only Bloomberg, Reuters, DJ etc. Too bad Jump Trading and Squared Financial are proprietary trading companies. They don’t manage assets from clients. They serve only traders so they do not issue quarterly reports. Quarterly reports could be interesting source of information. It seems that Jump trading is more a technology company than a trading company. I don’t see (look closely at fourth photo) any charts, Bloomberg terminals, trading platforms etc. I see that almost all screens are fillled with codes and charts are moved to upper (supporting) screens. Definitely they have the know how, resouces and motive to contact CEP like news organisations.