How is Facebook Different than the Deutsche Börse AlphaFlash?

You will recall that earlier in the year the Securities and Exchange Commission announced that it is OK for public companies to use social media to disclose what is (up to the time of disclosure) non-public information.  You will also recall that in a previous post, we discussed how you will be at a disadvantage as an investor if you don’t participate in the social media where companies make information disclosures.

Now scrutiny is being paid to the practice of selling early releases of economic information.   At the root, we have the same issue in both situations – some people get early access to information and others do not.  It looks like this one won’t come out the same way though.

As described in a New York Times article:

On Monday, one prominent data provider, Thomson Reuters, under pressure from the attorney general, announced that it was suspending an early release of a consumer confidence survey to clients who paid extra.

Early in this case means two seconds.

According to Bloomberg:

The two-second advantage is enough time for traders to take “unfair advantage” of access to the information, the attorney general’s office said in a statement.

If you don’t think that a two second advantage is an important investment issue, consider this from the New York Times article:

One recent example is a service that the Nasdaq market and Chicago Mercantile Exchange introduced in May, which promises to get Nasdaq’s market data to customers in Chicago — and Chicago data to the East coast — 2 milliseconds faster than it is otherwise available thanks to the use of microwave transmission. The cost for the advantage is a reported $20,000 a month.

That’s milliseconds people!  Milliseconds!  Apparently time really is money.

Now back to the SEC’s decision about social media.  As we discussed previously, there is a cost to participating in social media.  At a minimum that cost is providing personal information that might be improperly used or disclosed – like just happened at Facebook.

Let’s review:

I give (Facebook/Thomson Reuters) value in the form of (information and acceptance of risk/money), in exchange for which I get access to investment related information sooner than people that don’t make that deal.

To paraphrase Groucho Marx:

This is so obvious a four year old child could understand it.  Run out and get the SEC a four year old child to explain it to them.

I’m waiting for government to find a third side to take on this issue.  In the meantime, in case you don’t want to read the whole New York Times article, the Deutsche Börse AlphaFlash is a service that provides to subscribers certain economic information three minutes earlier than others get that information.  Three minutes sounds like a lifetime now.

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