The Data Leaks That Move Markets

During October 2012, Google’s quarterly earnings were scheduled for release at 4:30 just after the market close. The timing meant the news could be explained in a conference call and digested overnight. However, the document appeared at 12:30 pm—the middle of the trading day.

Instead of digestion, it was instant heartburn.

Surprised to see Google’s earnings so early, traders rushed from meetings to respond. With volume soaring and the stock plunging on missed expectations, trading in Google was halted for 2 1/2 hours.

The firm’s financial printer admitted it had pressed the “submit” button too early. Twitter had a similar problem last month.

Where are we going? To data release security.

A Fed Leak

Also during October 2012, recipients of a private newsletter heard some Fed info before anyone else.

During their September meeting, the FOMC planned a third round of monthly QE purchases of approximately $40 billion and said inflation and unemployment guidelines could shape future decisions. The clients of Global Medley Advisors knew most of this on October 3rd. Because the world found out on October 4, a select few could make buy/sell decisions with facts no one else knew.

When Fed authorities realized the contents of its minutes were in that investing newsletter, red flags popped. But it has taken until now for more about the investigation to reach the headlines. In addition to a Federal Reserve inquiry, the breach is the focus of a Congressional probe.

Employment Data Security

Sounding more secure than the Fed, the Bureau of Labor Statistics released employment numbers this morning. Days before their monthly announcement, they declare a lockdown when economists are processing the employment data. Office suites are isolated, trash pick-up stops, IT access is prohibited. Then, on the Friday of the 8:30 am release, reporters surrender all electronics as they enter a special room at 8 am to see the report. Just before the actual release, there is a countdown so that everyone at the same milli-second makes the call to the outside world.

Our Bottom Line: Asymmetric Information

Whether monitoring insider trading or government data that can move markets, market regulators try to give everyone access to the same information at the same time. Their goal is to avoid “asymmetric information” whereby some market participants, as with the Fed’s FOMC leak, know a lot while others know nothing.

Correspondingly, but a topic we will save for another day, the timing of a data release from firms like Google and Twitter also matters.