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U.S. Data-Release Plan Has Wall Street Preparing for Algo Wars

Nick Baker and Katia Dmitrieva

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Financial markets beat to the rhythm of economic reports, so the possibility the U.S. will shake up how that data is released has Wall Street pondering the consequences.

Right now, journalists, including those from Bloomberg News, get advance copies of market-moving reports from the federal government without the ability to disseminate them until an agreed-upon time.

Donald Trump’s administration may stop this practice at the Department of Labor, which releases figures such as monthly employment numbers, according to people familiar with the matter. While the reason for the potential shift wasn’t immediately clear, the previous administration argued that the setup was risky from a security standpoint and cited high costs for providing security and staff.

There may be unintended consequences. If the government data is only available on its website at the time of release, it could make these reports more of a winner-takes-all situation. That’s because websites are built atop a first-in, first-out communications protocol. Whoever pings a site fastest gets the information first -- meaning a single trading firm may get the market-moving info before anyone else, virtually ensuring a winning trade.

Lockups

Under the current setup, Bloomberg News, Reuters and other accredited media organizations participate in a lockup process. They are allowed into a room, cut off from communication with the outside world and handed key economic data. But at the appointed time, a switch is flipped and those journalists can pump out the results to their readers and paying subscribers at once -- forming arguably a more level playing field.

“Anything that affects the information flow is never well received by the market,” Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management, said on Bloomberg Television Tuesday. This will “create more volatility going forward.”

Lockups, which are permitted but not required by government regulations, have been a mainstay for U.S. media for almost four decades. They have been designed to give reporters time to digest figures on market-moving data and make sure they are accurate before distributed to the public. Statistics agencies and central banks in the U.K. and Canada use similar procedures.

“The details of economic data releases matter,” said Bipan Rai, North America head of foreign-exchange strategy at CIBC. “The longer it takes to suss out the details post-release, the higher the chances that markets will whip around.”

There is precedent. The U.S. Department of Agriculture decided in 2018 to stop giving journalists key crop reports early. That information now hits the government’s site first. The agency said posting the information online was cheaper and less risky.

Those releases have mostly been smooth since then, but there was a snafu in November that messed with traders. USDA.gov was down for roughly six minutes, and corn prices jumped during the delay. Prices came back down once the data came out. There was another technical problem in December.

The government has tightened its lockup procedures over the years. In 2012, the Labor Department wrapped an investigation, that resulted in officials rescinding the credentials of several agencies in the lockup, including one firm -- Need To Know News -- which was in fact owned by a German exchange and feeding data to traders. They were removed from accessing the room and the agency updated its technology.

Here are more reactions from finance pros:

Marshall Front, chief investment officer of Front Barnett

“Major players betting on economic data are algo traders. They don’t wait for interpretation anyway, they have key words that they look for in a release, and if those words are mentioned, they’ll act, they don’t wait. How algos will react to that is yet to be seen. But I don’t think this is a development that enhances the public’s knowledge. For media workers, it forces people to make statements that may not be as carefully drawn on because they didn’t have the time to study them. It’s not a good development.”

Dave Lutz, managing director of JonesTrading

It’s “sure going to mess with the headline-reading algos.”

“It’s just going to make things a bit more volatile around releases for longer.”

Stephen Stanley, chief economist at Amherst Pierpont Securities

“Obviously some firms are bigger than others, some have more resources than others, and some will make a choice in the environment that might ensue to dedicate more resources to this, so I do think the playing field at the margin would be less level.”

Delores Rubin, senior equity trader at Deutsche Bank Wealth Management

“As a trader, you look for the headlines with an idea going in what you expect, what is consensus and how you think to position on the outcome. That is the normal immediate action, but the in-depth media analysis is sought to further understand the details, get a ‘trusted’ interpretation and also make sense of a market move that does not match your own expectation. It is hard to say if the impact will create more volatility on economic data releases or a pause as traders wade through the details of the data or await the media analysis.”

--With assistance from Alyce Andres, Michael Hirtzer, Millie Munshi, Elena Popina, Sarah Ponczek, Vildana Hajric and Emily Barrett.

To contact the reporters on this story: Nick Baker in Chicago at nbaker7@bloomberg.net;Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, ;Scott Lanman at slanman@bloomberg.net, Margaret Collins

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