The Federal Open Markets Committee released its decision not to taper bond purchases last Wednesday at exactly 2 p.m. eastern time. The news should have taken 7 milliseconds to travel at the speed of light from Washington to Chicago. But Chicago markets began moving in response to that news only 3 milliseconds after 2p.m. Is news traveling faster than the speed of light now?
The time difference at stake is way less than a blink of an eye (it takes a person 300 or 400 million milliseconds to do that), but in trading, it matters. Trading computers are so smart now that you can plug high-speed data feeds into them, and the computers will "analyze the news as it comes in and execute pre-programed trading strategies," CNBC reports. Again, in Chicago, trades shouldn't have happened until 7 milliseconds after 2p.m. But Nanex Research, a firm that "has been at the forefront of discovering market abuses, particularly in the area of high-frequency trading," discovered a buying increase in the eMini futures market in Chicago just 3 milliseconds after 2p.m. Gold futures started accelerating just 1 or 2 milliseconds after 2p.m.
The Fed is now investigating whether or not a media organization may have leaked the "no taper" news early. CNBC reported on Tuesday on the conditions surrounding the embargoed news — reporters were literally locked in a room in Washington at 1:45p.m. on Wednesday. The reporters got copies of the Fed's statement at 1:50p.m., but were not allowed to breathe a word of it until 2p.m. (according to the national atomic clock in Colorado). The Fed had many precautions in place (you can read all of them here), but it appears that something may have leaked.
The early trades weren't minor, either — Nanex estimates that $600 million changed hands between millisecond 1 and millisecond 7 in Chicago. A Fed spokesman wouldn't tell CNBC definitively whether any media organizations broke its rules, or which media organizations the Fed is now in talks with.
This is just another example of how important milliseconds have become in trading. Last year, Bloomberg Businessweek reported on the development of Project Express, a 4,600-kilometer Trans-Atlantic submarine cable system linking North America and the United Kingdom. The cable allows information to travel between New York and London 5 milliseconds faster than before. A few U.S. and European high-speed trading firms can now pay to use the cable, though Hibernia Atlantic, the company that owns the cable, has sworn to keep the identities of those firms secret.
Last year, senior vice president Joseph Hilt of Hibernia Atlantic told Businessweek, "that extra five milliseconds could be worth millions every time they hit the button." Or hundreds of millions, if today's news is any indication.