Somebody Stole 7 Milliseconds From the Federal Reserve 740
An anonymous reader writes "Three to seven milliseconds before the fed moved interest rates, billions of dollars of trades were input that took advantage of the changed rates, reaping huge profits. According to a report at Mother Jones, 'Last Wednesday, the Fed announced that it would not be tapering its bond buying program. This news was released at precisely 2 pm in Washington 'as measured by the national atomic clock.' It takes 7 milliseconds for this information to get to Chicago. However, several huge orders that were based on the Fed's decision were placed on Chicago exchanges 2-3 milliseconds after 2 pm. How did this happen?'"
Re:Uh... (Score:5, Informative)
Can someone explain this to me in idiot? I don't see what the problem is, nor why I should care.
FTFA
There would seem to be three possibilities: 1) Some trader was extraordinarily lucky, placing a massive bet just before a major announcement that would make that bet highly profitable. 2) There was a leak, either by a media organization with early access to the data or even someone at the Fed. Or 3) The laws of physics have been violated as the information traveled from Washington to Chicago faster than the speed of light.
Re:Uh... (Score:5, Informative)
Big money interests are engaged in insider trading.
In idiot: Bad men do bad thing. Touch you in bad place.
LOL (Score:4, Informative)
7ms? less than 3.6ms. (Score:2, Informative)
Obvious answer: (Score:4, Informative)
Information was leaked and the whole thing setup to look somewhat legitimate. 3ms is the absolute fastest anything can get from Washington to Chicago, so the information was there before the official announcement.
The info was already distributed (Score:5, Informative)
Re:I do not understand why this is a story (Score:5, Informative)
Re:LOL (Score:4, Informative)
This. To give a few more details as to what the article says though. Basically, even assuming they have some genius computer that can parse the announcement made at 2pm and execute these trades within 1 millisecond or less, it would be physically impossible for the news to have been received that quickly. The trades in Chicago were executed 2ms after 2PM. The speed of light dictates that the news (assuming no barriers or other latency) would take at least 7ms to actually reach Chicago from where it was announced.
So, in summary, no matter what these crooks try to say to fool a jury with favorable circumstances, it is physically impossible that they did not know about this news before 2PM
Re:I do not understand why this is a story (Score:5, Informative)
By waiting until the information was public, they weren't engaged in insider trading.
LK
Original article and data (Score:5, Informative)
http://www.nanex.net/aqck2/4436.html [nanex.net]
They might have only barely had enough time. (Score:5, Informative)
From: http://www.cnbc.com/id/101056168 [cnbc.com]
"Inside a room on the top floor of the William McChesney Martin, Jr. building, Fed officials instructed reporters not to send information about that decision to the outside world before precisely 2 p.m. as measured by the national atomic clock in Colorado.
The doors were locked at 1:45 p.m., and Fed staffers handed out copies of the statement at 1:50 p.m., allowing reporters a few minutes to digest the complicated document before reporting on its contents. At 1:58 p.m. television reporters were escorted out of the room to a balcony where cameras had been prepositioned. The Fed's security rules dictated that television reporters were not allowed to speak before precisely 2 p.m. Print reporters were told they were allowed to open a phone line to their editors at headquarters offices a few moments in advance of the hour, but not allowed to interact with people on the other end of the line until exactly two p.m."
So many hacked communications channels are still possible from this. The print writers can signal the editors when making phone calls before 2pm, without talking to them. For example, the editor can instruct the reporter to call them on landline if it's a sell, or his mobile number if it's a buy. The TV reporter can wear a jacket if it's a sell, or remove it if it's a buy, so someone across the building can monitor the balcony for pre-release signals... etc.
Also, from the http://www.nanex.net/aqck2/4436.html [nanex.net]:
"It wasn't just gold. It was everything that traded. In fact, the 1/100th of a second after 2pm was the most active 10 milliseconds in the history of the U.S. Stock an Futures markets."
This was a major, major hack, and they waited as late as they could wait, without signaling their competitors.
Re:7ms? less than 3.6ms. (Score:5, Informative)
Re:7ms? less than 3.6ms. (Score:2, Informative)
http://www.aviatnetworks.com/solutions/low-latency-microwave/
Re:wrong two words (Score:5, Informative)
No need to concoct such a nefarious plan.
http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it-possible-many-people-leak-it [zerohedge.com]
Plenty of people knew and could leak the information early.
Re:I do not understand why this is a story (Score:4, Informative)
It's not that interesting. They can be committing "insider trading" even if they'd waited until after the information had arrived, because they'd still have had an unfair time to decide what to do with it. As others have pointed out, in this case someone probably prepared an order plan ahead of time, and sent it off just ahead of everyone else. Even today's computers still take some time to process the incoming data.
Re:LOL (Score:3, Informative)
They didn't steal 7 milliseconds.. they had the information minutes or more likely a few hours before everybody else. Don't try blaming this on some simple technological advandage.
I agree. This trade was based upon a bit of inside information and it was executed in this way so that no one would notice, or so they hoped. Well, someone noticed and that cat is out of the bag.
I generally subscribe to Holmesian school of thought on such things: "Eliminate all other factors, and the one which remains must be the truth." I doubt that the traders used time travel or that one of them was able to speed up the speed of light specifically for this purpose, or that they executed this trade by guessing that it would happen precisely after it finished. And, as far as I know, John de Lancie is still an actor and not a member of the Q Continuum using this as a prank to play upon us. Therefore, eliminating all the other possibilities, the cause is insider trading.
There! Mystery solved. You may now congratulate me or denigrate me as you choose.
Re:I do not understand why this is a story (Score:5, Informative)
Did they really? The information was, at the time the trade was executed, already announced and public. I do believe that, if a person has insider information, the restriction on them is that they cannot use it until it becomes public information.
So maybe they broke the law in how they got the information, but by waiting until its public to execute the trade, they seem to have, in actuality, complied with at least a lay understanding of the relevant regulations. My own company sends out reminders at various times to be wary of making statements because of worries about insider leaks, but as far as any training I have ever had to take has said, once the information is public, trading based on it is fair game.
So how about this.... trader came about insider information, knew when it was to be announced, and timed his trade for as soon as possible after the announcement in an attempt to profit while still being in compliance?
Does the law/regulation take into account information travel time from the point of announcement in determining the order of events?
Not saying its wrong to, clearly its right by any understanding of physics that I have, but, isn't expecting people to understand such nuances a bit unrealistic?
Re:Seven milliseconds? (Score:4, Informative)
Actually a neutrino beam could make the trip faster than photons can in practice. One, because neutrinos could travel through the crust of the earth and thus avoid having to go around the curvature. Two, they would be traveling much closer to the speed of light than the photon-based signal, because that signal will be slowed by the index of refraction of the medium in which it travels, be it fiber optic cable or air (for radio waves).
Here's a link to an actual demonstration of an ASCII message sent via neutrino over 1035 meters [arxiv.org]
Here's how they did it (Score:4, Informative)
It sounds as if news services could have released it at exactly 2pm in Chicago without breaking the Fed's rules. The rules say "public use."
I often work with material under a press embargo. If I get something on Tuesday with an embargo of 2pm EST Wednesday, that means I can send it to my editor in Chicago (or anywhere else) on Tuesday. That's not public use. My editor will wait until 2pm EST and release it (for public use) at that time in Chicago.
FTA:
Transmitting them to the news service's own computer system in Chicago isn't "public use."
"No public use" means you can transmit your story to your editor in Chicago, who holds it until 2:00:00 pm EST and releases it immediately in Chicago.
That would be an unusual news story. It would consist of 1 machine-readable bit meaning "buy." But that's all their readers need.
Quick, everybody, you've got 7 milliseconds to mod me up to +5 insightful.
Re:I do not understand why this is a story (Score:5, Informative)
Trades were executed in Chicago before the change was announced in Washington D.C. in a relativistic physics sense.
Actually, in relativistic physics sense, the trades in Chicago where outside of the light cone of the Washington event (neither in the future cone nor in the past cone). That being said, since Washington and Chicago do not move at relativistic speed with respect to each other, the trades are still at a later time than the announce, even if there's no possible causality.
Misinformation... (Score:5, Informative)
1) There is no such thing as "insider trading" in treasury bonds or their futures (or commodities futures or foreign exchange or options on any of the above). The reasoning is that the majority of the participants in those markets are knowledgeable insiders. Corporate bonds are a grey area but no one has ever been prosecuted and numerous people have openly traded on insider info. The SEC brought one case related to trading on credit default swaps, but it didn't go anywhere. Insider trading on stocks and stock options is illegal by case law.
2) if you had information about the Fed's future rate policy, you could make you bet in the spot or futures markets well ahead of the announcement. You would get a better price on your bet by doing so assuming it was a large bet, because markets tend to thin out before announcements (for technical reasons irrelevant to this discussion - just know it happens reliably).
I would guess the most likely explanation here, as with most apparent violations of the speed of light, is poor clock synchronization or other measurement issues.
Re:wrong two words (Score:5, Informative)
Ummm, what? That's exactly how most trades originate.
Here: [bloomberg.com] "Today, when Bloomberg releases a market-moving headline, on average it takes 4 seconds for the markets to move after the news story hits. Bloomberg machine-readable news can help you get ahead of that window.... Bloomberg's Event-Driven Trading feed offers clients instant, machine-readable delivery of Bloomberg's world-class news and data, including breaking headlines, exclusive worldwide market-moving coverage, structured financial data from company releases, news analytics, and global economic data."
Trying to compete with these guys by websurfing is really no different than reading the evening paper.
Well, here's a recent article [businessweek.com] that says the percentage of trades that are automated has been falling and may only be slight majority now.
Re:wrong two words (Score:4, Informative)
These sort of announcements are generally written by computer, sent by computer, received by computer (over quite expensive lines), parsed by computer, and acted on by algo trading, generally in less than 1 ms these days. There's a whole industry around it. (Or should I be expecting a Whooshing sound any minute now?)
I suspect the answer is: the "Chicago Exchanges" have nodes on the low-latency Wall Street network.
Re:I do not understand why this is a story (Score:5, Informative)
"Washington to Chicago is 596 miles via a great circle, however the Earth's curvature will reduce that, but only by about a mile. Light travels at 186 miles per second, thats 3.2ms"
Wrong in several respects.
(A) Curvature doesn't reduce the distance. Communications lines are on the surface.
(B) As someone else mentioned, it's 180,000mps.
(C) Electricity does not travel as fast in wires as light does in a vacuum. In a coax cable, it's only about 2/3 the speed of light. And even if it were fiber, not wires, you then have the speed of the circuits that do the conversion and switching... still adding significant delay. So you can't use light speed as a measure, unless you're trying to establish a ridiculously unachievable lower bound.
"In the case of antipodes, you certainly see the effect Auckland to Malaga, 12392 miles (67ms) as the great circle goes, but dig a hole through the earth and you can do it in under 8,000 miles (42.5ms)"
As already mentioned, this is a specious argument, since the communications are not traveling in a straight line, but on the surface.
At 596 miles, the speed of light is indeed 3.2ms. Add in switching delays, etc. and you get closer to 5ms, and that's assuming fiber.
But ALL of this is really beside the point. The knowledge that they were going to do it was presumably public. And even if not, and it was "insider" knowledge, it's still beside the point. Because they traded too early. 7ms advantage today is a significant advantage for HST.
Re:Uh...NO! (Score:2, Informative)
Re:I do not understand why this is a story (Score:4, Informative)
Chicago was within the light cone from the Washington DC disclosure when those trades were made.
You're talking network latency and not relativistic reality.
LK
Re:wrong two words (Score:4, Informative)
Please don't listen to Truthers.
The 9/11 Comission did trace the orders back the investors and figured out what information motivated them to place the orders and what motivated the source of the information in the first place.. [911myths.com]