Update market rules for modern realities

The nature of stock trading has seen dramatic change and increased sophistication, so it makes sense that the federal government should consider changes in how it protects and releases important economic data. According to a Wall Street Journal story Friday, that is exactly what the Obama administration is doing.

At issue are the advantages high-speed trading firms can gain over smaller investment firms and individual investors if information is leaked or released in such a way that it favors them. While there is probably no way of completely assuring fairness to all, it does behoove the government to consider whether the old ways of doing things assure unfairness.

According to the Journal, the talks are only at the preliminary stage and include White House economic advisers and officials from departments such as Labor, Commerce and the Federal Reserve.

Reports about economic growth, unemployment, manufacturing numbers and the divinations of the Federal Reserve can move markets dramatically and, using digital technology, at speeds sometimes measured in microseconds.

Given that reality should federal agencies keep using "lockup" rules that probably date to when reporters were clacking away on typewriters? Under this traditional arrangement, government agencies release the economic data to reporters with an embargo. This has served to give reporters time to assess the complex reports and dissect the information so that when the embargo is lifted, and publishing begins, news outlets can provide accurate stories that place the information in appropriate context.

But who is a journalist deserving of the special treatment? The Labor Department last year began withholding the embargoed information from several communication firms that it did not consider falling within the traditional journalistic role, but which instead push information to a select clientele.

Several media companies, including - as the Wall Street Journal acknowledged in its reporting - its parent company, Dow Jones & Co., use the lockup rules to prepare and then sell raw data from the government reports (paid for by all of us) to high-frequency trading firms.

"That data, sent along high-speed transmission lines, allows firms to make computerized trades before individual traders can react," wrote the Wall Street Journal.

That is blatantly unfair.

How can federal agencies improve the situation? Well, solutions won't be easy and may vary by agency and the nature of the information released. One solution may be to release the data directly to the Internet. High-speed and larger trading firms would still have an advantage, but at least they would not be provided the additional embargo time to organize the information and make lightening trades that change market dynamics before anyone else can act.

Also on the agenda is how to protect information. The prospects of billions of dollars in profits invite cheating. The Commerce and Labor departments are undertaking physical changes to improve security, including walls that wireless signals cannot penetrate.

In the meantime, the federal government needs to take cheating seriously and punish it severely. This is not a game. The Securities and Exchange Commission has launched several investigations, assisted by the FBI and other agencies, into reports that media firms or individuals have fed information to stock traders before its approved release time, a violation of insider-trading rules.

It seems nothing is as simple as it used to be.

The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.


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