UPDATE 1-Business Wire to stop selling directly to high-frequency traders
NEW YORK, Feb 20 (Reuters) - Berkshire Hathaway's Business Wire will no longer sell potentially market-moving press releases directly to high frequency-trading companies, after months of discussion with the New York State attorney general's office, a source familiar with the matter said on Thursday.
After consulting with billionaire investor Warren Buffett, Berkshire's chairman, Business Wire decided the practice could harm the company's reputation, not because traders got any sort of time advantage, Cathy Baron Tamraz, chairwoman and chief executive officer of Business Wire, said in a release.
Business Wire distributes hundreds of thousands of corporate press releases a year, from the inconsequential to regulatory filings of major importance that can help push a stock sharply higher or lower.
A source familiar with the matter said that Business Wire had been in discussions with the New York State attorney general's office since October, not long after Attorney General Eric Schneiderman gave a speech about such practices.
High-frequency traders use sophisticated technology to execute orders faster than traditional segments of the market, even when they receive information such as press releases at the same time as other investors. That, in turn, can translate into higher profits, especially on large volume trades in which even pennies matter.
Those conversations with the state attorney general's office accelerated this month after the Wall Street Journal reported on the difference that milliseconds can make to the profits of high-frequency traders, the source added. The attorney general's office expressed concern about the practice, the source said.
Schneiderman on Thursday encouraged other information services companies to adopt a similar stance.
"I strongly encourage other participants in this industry to follow the leadership of companies like Business Wire and join us in the effort to level the playing field between high-frequency traders and the rest of the investing public," he said in a release.
Tamraz, Business Wire's CEO, referenced the Journal article this month, which looked into how even milliseconds can mean extra profit for high-speed traders.
Critics have pointed the finger at such high-frequency trading for volatile market moves, such as the "flash crash," or abrupt plunge in shares, in 2010.
But supporters of high-frequency trading say it adds liquidity to markets.
"As the recent Wall Street Journal article and others have pointed out, there was nothing wrong in Business Wire serving these handful of HFTs directly," Tamraz said in the statement.
"However, in discussions that have taken place with a few of our clients, we learned that the article may have caused some misperceptions, and that was of deep concern to us," she added.
An email to Berkshire Hathaway requesting comment was not immediately returned.
Last year Thomson Reuters Corp said it would suspend its early release of the widely watched Thomson Reuters/University of Michigan consumer sentiment data to a small group of clients.
The arrangement was the subject of a probe by Schneiderman, whose office requested the suspension.