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‘Timing Discrepancy’ Gives SEC Filing Subscribers Unfair Advantage: Senators

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The two top senators on the Senate Banking Committee asked Securities and Exchange Commission Chairwoman Mary Jo White on Monday to explain how the SEC plans to remedy the “timing discrepancy” that allows private subscribers to electronic feeds of SEC data to see corporate filings before the public can.

In their letter to White, sent late Monday, Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, express their concern over a recent academic study showing that private subscribers to an SEC direct data feed could access filings an average of 40 seconds before they appeared on the SEC’s website, and markets began to respond to the news around 30 seconds before public posting.

For high-frequency traders and even financial newswires, who also use these services, 40 seconds is a huge advantage. In another example the study’s authors cited, Thomson Reuters allowed subscribers, for a fee, to access a consumer sentiment index two seconds early.

“This timing discrepancy gives an advantage to certain sophisticated trading firms,” the senators said, and “raises significant concerns regarding the management of the data systems that provide investors access to important, and potentially market-moving, information.”

Johnson and Crapo also cited comments made by White in a June 5 speech on equity market structure, in which White said that when looking at access to trading data “a related fairness concern is the latency difference between the direct data feeds and the consolidated feeds.” 

The academic study shows “that a similar dynamic exists with respect to company filings with the SEC – certain investors are given access to real-time information before it is widely available.” This “unequal access,” the senators said, ”is even more troubling because it results from SEC-managed systems.”

The SEC hires a contractor to run the EDGAR site, where filings on earnings, mergers, bankruptcies, insider stock trades and other matters are posted. According to The Wall Street Journal, the contractor simultaneously posts filings to EDGAR and to about 40 subscribers, who pay about $1,500 a month. But the news often takes 10 to 60 seconds longer to show up in the EDGAR system.

Johnson told White in the letter that “ensuring a fair marketplace is one of the SEC’s most important objectives.” He urged the SEC “to quickly investigate this timing disparity for company filings and take the necessary steps to eliminate it.”

Crapo added that the SEC “is tasked with protecting investors and maintaining fair and efficient markets. It is important that the agency, arguably more than anyone, ensures that its systems do not provide preferred access to certain parties rather than the broader market.”

The two senators requested that the SEC explain the steps being taken to eliminate this disparity and prevent this issue from happening again in the future.

— Check out SEC, FINRA Enforcement: HFT Firm Charged With Manipulating Closing Prices on ThinkAdvisor.