NY Attorney General Press Release on Providing Information to Customers (with Lofchie Comment)

New York Attorney General Eric Schneiderman announced that publisher Thomson Reuters has agreed to discontinue the practice of providing high-frequency traders with certain consumer survey results prior to the release of that information to other subscribers. The announcement was, according to the release issued by the Attorney General, prompted by an ongoing investigation into whether or not the University of Michigan's consumer survey results, released to high-frequency traders two seconds earlier than other Thomson Reuters subscribers, provided an unfair advantage, causing market distortion.

Lofchie Comment:Linked below, there is a thoughtful and funny article from Dealbreaker criticizing the actions of the Attorney General as an infringement upon freedom of the press. Beyond the points made in the Dealbreaker article, additional issues for consideration include:First, there seems to be a general impression among financial regulators that "information" is a public asset, and that it is improper for the possessor of information to profit from the use of that public asset at the expense of another person who does not have the same information. This impression does not seem to be correct, nor, if it were correct, would it seem to be good public policy. Gathering information and putting that information into an usable form is expensive. If financial regulators create a rule of law that prohibits making a profit from having better information, they eliminate the economic incentive to gather information. From a societal standpoint, this is a bad result. By way of analogy, the reason that society has rules awarding patents is that there is a general (even if not unanimous) consensus that society as a whole benefits when private individuals are able to derive some profit from the production of intellectual property. In the financial markets, private individuals pay for information so that they can make more informed investment decisions, a result that should benefit society as a whole. Conversely, any financial regulatory system that drains information of any economic value is going to create less information. Second, one of the odder aspects of this case is that the Attorney General is not arguing that the information at issue is in the public domain. Rather, he states that it is "unfair" for some Thomson subscribers to receive the information before others, but he does not suggest that it is unfair for Thomson subscribers to receive the information before the public generally. Third, one of the points made by the Dealbreaker article is how open-ended the law is (the law in this case being the Martin Act), and how great is the power of government actors to "enforce" laws on the basis of ambiguous or, in this case, novel interpretations. This is a concern that numerous commentators have raised with regard to Dodd-Frank and the rules under it. For example, in the CFTC/SEC release defining the term "swap," regulators assert hundreds of times that they will determine, based on (undescribed) facts and circumstances, whether a financial transaction constitutes a swap. Under those "rules" of interpretation, market participants have no way of knowing how to comply with the law.Fourth, this particular case has implications for broker-dealers who distribute information. It raises a question as to the extent to which a business can treat any of its customers differently.

See: Attorney General Press Release.See also: New York Attorney General Will Supervise When and How News Organization Can Report News (Dealbreaker Article).