An investigation by New York Attorney General Eric Schneiderman, which on Monday forced Thomson Reuters to suspend its practice of releasing market moving data early to paying clients, extends well beyond Thomson Reuters, CNBC has learned.
The investigation is "looking more broadly at practices that allow for unfair trading opportunities based on timing disparities," a source familiar with the inquiry told CNBC. The investigation "will follow all logical leads beyond Thomson Reuters."
That could have implications for a range of super-fast data and news feed services, as well as a cottage industry of private and quasi-governmental entities that produce and sell economic data. The financial markets have historically relied on that information as benchmark indicators of the future value of stocks and bonds. Some of the data produce notable market moves within just a millisecond or so of their release, as firms engage in a telecommunications and computing arms race to gather information and process trades faster than a human being can blink an eye.
On Monday, Thomson Reuters announced that it was suspending a so-called "tiered release" of market moving data to elite clients. The data and news service had been selling the University of Michigan's consumer sentiment numbers to paying clients at 9:54:58 on release days—two seconds before the information went to a broader set of clients at 9:55 am. That created an opportunity for high speed trading firms to rake in profits before the rest of the market knew which direction the impending news would propel trading.
In a statement, Thomson Reuters said it was cooperating with Schneiderman's investigation and that its decision to stop the early release came voluntarily but "at the request of the attorney general."
The firm also defended the practice of early data release as journalism, rather than market activity. "Thomson Reuters strongly believes that news and information companies can legally distribute non-governmental data and exclusive news through services provided to fee-paying subscribers," the firm said. "It is widely understood that news and information companies compete for exclusive news and differentiated content to help their customers make better informed trading and investment decisions."
Schneiderman didn't see it that way. "Promoting fairness and avoiding distortions in the securities markets is an important focus of this office," the New York attorney general said in a statement. "The securities markets should be a level playing field for all investors and the early release of market-moving survey data undermines fair play in the markets."
According to a contract outlining the agreement obtained in June by CNBC, Thomson Reuters pays the University of Michigan at least $1 million per year for exclusive early access to the data, which is generated by the university's survey research center. A spokesman did not immediately respond to a request for the University's reaction to the Thomson Reuters decision.
The source familiar with the investigation said it is seeking details on the origin of the Thomson Reuters early release system, and it will also attempt to figure out how much has been made in profit as a result of it.
"What Thomson Reuters was doing here was allowing a small group to exploit the fact that the world was waiting for this information to come out two seconds later to give a few elite traders the opportunity to drain the market of value," the person said.
The New York Attorney General's investigation is just one probe into the big business of economic data. In late June, CNBC reported that the SEC is investigating the relationship between Thomson Reuters and the Institute for Supply Management. The two entities join forces to publish market-moving manufacturing data that is generated by ISM and published to high-speed data clients by Thomson Reuters.
Thomson Reuters inadvertently released ISM's manufacturing data early on June 3rd to its high-speed clients, many of whom immediately traded on the information. There was a sharp market reaction to that burst of trading, which prompted downward moves in the SPY ETF, which serves as an investing tool for traders to bet on the overall direction of the market. That downward surge came 15 milliseconds ahead of the official release time for the data.
ISM CEO Thomas Derry said at the time the SEC had asked Thomson Reuters for a copy of its contract with ISM. The two organizations released a redacted form of the contract to the SEC, Derry said. "The SEC did speak specifically to Thomson Reuters about our relationship," Derry said. "We have not been contacted by any government entity."
Derry said that in the wake of the incident ISM has spoken to Thomson Reuters about the mechanics of the release of data, and he's satisfied that inadvertent early release will not be repeated. "We have to be smart enough with our partners to manage the process appropriately so we're not giving anyone a running start," he said.
—By CNBC's Eamon Javers. Follow him on Twitter: @eamonjavers