If Greed is Good, Is Speed Even Better?

To coin a phrase: The early bird catches the worm.

Being first with the news is an obvious advantage, and not just if your livelihood comes from trading either stocks or gossip. If you're in the market for a Manhattan apartment, knowing that a friend-of-a-friend is about to sell and move out to the 'burbs can mean landing that perfect (tiny) West Village condo.

Sometimes being first is just good luck.

Sometimes it comes from greasing the right palm, a.k.a. insider trading, which is illegal -- although proving the illegality can be tough.

And between pure luck and insider trading, there's a lot of grey.

As Nathaniel Popper reports in today's New York Times, "first access" has become a profitable business model.

He writes, "Dow Jones recently announced the creation of DJ Dominant, a program that will release news articles two minutes early to subscribers who pay more."

Another examples Popper cites is

a service that the Nasdaq market and Chicago Mercantile Exchange introduced in May, which promises to get Nasdaq's market data to customers in Chicago -- and Chicago data to the East Coast -- 2 milliseconds faster than it is otherwise available thanks to the use of microwave transmission. The cost for the advantage is a reported $20,000 a month.

Similarly, Thomson Reuters has offered clients information about the University of Michigan's influential consumer confidence index "a full two seconds" before its "early" release, itself two minutes before the official release.

As trading is increasingly computer-driven and high-speed, even two seconds can make a significant difference.

But Thomson Reuters has just suspended its early-early release, under pressure from the New York attorney general's office, which is reportedly taking a "broad look" at the practice. According to a New York Times DealBook article by Peter Lattman (published Monday), the state's "investor protection bureau" is looking into the question of "whether preferential disclosure of data is a fair and appropriate business practice."

The New York attorney general's office has considerable power over Wall Street, thanks to the Martin Act, which gives "the attorney general broad powers to pursue either criminal or civil actions against companies... [and] does not require the government to show proof that a company intended to defraud anyone."

Popper quotes state attorney general Eric Schneiderman as saying, "The securities markets should be a level playing field for all investors and the early release of market-moving survey data undermines fair play in the markets."

Since I'm not a lawyer, I can't speak to the legality of Thomson Reuters' behavior (nor that of Dow Jones, the Nasdaq, et al.). But I can speak to the ethics.

The stock market is often held up as an example of a perfectly level playing field -- if you can spot a great investment opportunity before your neighbor can, it doesn't matter that she's a high-powered hedge fund manager and you're a day trader working from your home office: You'll win.

But if that hedge fund manager can pay to get information about that potential opportunity two seconds before you can ... Just how level is that playing field, really?