Want an Edge ? Pay a Bribe and Trade Ahead on Insider Information

“A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.

But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.

In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.

For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.

In a statement, Thomson Reuters said, “Through an agreement with University of Michigan, Thomson Reuters is the exclusive distributor of the Thomson Reuters/University of Michigan Surveys of Consumers to its clients through various subscription services as well as to the general public via a press release. Details of the tiered release of this data are provided openly to Thomson Reuters customers and the wider public and anyone wishing to trade on this data can pay for the service that best meets their data needs.” …”

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