CBR Briefing #31

How high-frequency traders get an edge
Ultrafast traders can exploit time delays in postings of company stock filings.

A series of three line charts showing stock returns on the types of trades described in the article text, with the number of seconds before and after the SEC posting on the x-axis. The first chart plots the price change from sixty seconds prior to the SEC posting, with a line tracking subscribers with advance information starting to get higher returns thirty seconds prior and approaching twenty percent in the moment before the SEC posting. A second chart plots the percentage of abnormal trading volume, again showing subscribers getting a thirty-second jump, with their volume reaching seven hundred percent in the moment before the posting. A third chart plots the percentage of abnormal spreads, with subscribers again moving thirty seconds early, with abnormal spreads of nearly one-point-two-five percent in the moment before the posting.
Prices, trading volume, and stock spreads began to move 30 seconds before the filings appeared on the SEC website.
  • The US Securities and Exchange Commission (SEC) uses its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system to make insider-trading filings available to the public. Research by the University of Colorado’s Jonathan L. Rogers and Chicago Booth’s Douglas J. Skinner and Sarah L.C. Zechman suggests that the data have their own set of insiders.
  • The researchers find that in most cases subscribers to a direct feed from a private vendor used by the SEC to manage EDGAR are getting Form 4 filings (which disclose trades made by directors, officers, and owners of more than 10 percent of a class of shares) seconds before they appear on the SEC website. The subscribers’ average time advantage is 10 seconds.
  • The subscribers or the clients they sell the information to may be trading on the news before its public release. The researchers find that for filings where a subscriber had an information advantage, prices, trading volume, and stock spreads began to move 30 seconds before the documents appeared on the SEC website (see chart). When there was no information advantage, most of the market response occurred exactly at the time of public posting.

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