Trading Data?

Remember “Trading Places”?

Photo: Jeremy Kemp. Source: Wikimedia

The movie centers around commodities trading. For many folks, it’s their favorite depiction of financial markets. The director, John Landis, employed actual commodities traders as extras for several scenes of the New York Mercantile Exchange. At the movie’s climax, trading stops and the traders gather breathlessly around a television monitor, watching the Secretary of Agriculture personally read from the monthly crop report regarding that year’s orange harvest.

It’s very dramatic and great fun, but anyone involved in financial markets knows that’s not the way it works. For critical, market-moving news, accredited press organizations get access to a “lockup room” up to 90 minutes before the official release. They write up their news stories, and then release their headlines to readers right on time. Before we had the internet, news services like Dow Jones or Reuters would have scrolling headlines on dedicated printers or via their own terminals.

Now the USDA is changing the rules of the game. Rather than giving news organizations early access to the data, everyone will see the update at the same time. The government agency will use a TCP protocol to transmit the press release directly to its web-site. There has been some evidence that news organizations were planning to sell high-speed access to their reports.

USDA Summer Crop Map. Source: USDA

They say they’re going to beef up their servers to handle the expected spike in traffic, but I’d be surprised if the site doesn’t go down several times before they have enough resources. Dozens of trading firms will be scrambling to set up bots that will be the first to scrape the USDA site, process the report, and execute trades. Millions of dollars in profits or losses could be riding on this data, but agencies like the Department of Agriculture aren’t typically known for their lavish budgets and cutting-edge technologies. (Full disclosure: I used to work for the Energy Department many years ago, in a small, drafty office in Washington, DC. Perhaps things have changed.)

In the movie Trading Places, Eddie Murphy and Dan Ackroyd conspire to plant false crop report data with their rivals, who had stolen the USDA report. The key to their scheme is possessing the correct data at the right time. Let’s hope the USDA’s plan for releasing their data doesn’t start a high-speed financial arms race with fiber links and AI and quantum computing for firms to profit at everyone else’s expense.

Chicago Mercantile Exchange. Public Domain. Source: Wikimedia Commons

And a remake of the movie with Billy-Ray and Louis and the Duke brothers as competing algorithms wouldn’t be nearly as much fun.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-07-12T07:29:21+00:00July 12th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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