Buffett’s Firm Halts Direct Access to High-Frequency Traders

Business Wire, the San Francisco-based press release distributor owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK.A), has decided to no longer send press releases directly to high frequency trading firms [HFT] so they can trade on corporate earnings, merger announcements,  and other market-sensitive information ahead of most investors.

The decision comes after an article in the Wall Street Journal earlier this month cited Buffet’s subsidiary as one of the news sources professional traders can pay to get information seconds ahead of other investors, rather than access it through financial news wires such as Thomson Reuters (TRI), News Corp.’s Dow Jones and Bloomberg.

The article, written by Scott Patterson, notes that while these practices aren’t illegal, they do give high frequency traders an unfair edge – in terms of allowing them to shave thousandths of a second off the amount of time it took to receive and process the information received through direct feeds from Business Wire. In other words, and quoting Bberg’s Matt Levine, “the practice gives high-frequency traders an advantage over schlubs like you because”:

[via WSJ] “By paying for direct feeds from the distributors and using high-speed algorithms to crunch data and enter orders, traders can get a fleeting—but lucrative—edge over other investors, according to traders and people familiar with the practice. The reason: tiny lags between the time the distributors release the news and when media outlets send them out to the public, including other investors”.

In a statement, Business Wire Chief Executive Cathy Baron Tamraz said the company had done nothing wrong in serving the  HFTs directly, but  that “the article may have caused some misperceptions, and that was of deep concern to us,” adding that the most important assets for the company  are “our reputation and the trust we have earned from our clients and other market participants for more than a half century”.

Business Wire said the decision to halt direct access to HFTs was made after conversations between Tamraz and Mr. Buffett.

Business Wire’s move was welcomed by New York Attorney General Eric Schneiderman, who said the decision was a victory in the effort to eliminate advance trading on market-moving information and “a demonstration of Business Wire’s commitment to being a responsible industry leader”.

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