Insider Trading 2.0? The Ethics of Information Sales

Abstract The sale of faster access to financial market datahas recently generated public controversy. NY Attorney General Eric Schneiderman has referred to such fast data feedsas “ Insider Trading2.0”. For example, Thomson Reuters sold the University of Michigan’s Consumer Sentiment Index to computerized trading firms 2 seconds before releasing its data to its other paying clients. This paper explores the ethical issues involved in the sale of such information. Is selling faster access ethically the same as traditional insider trading, which generally involves a breach of fiduciaryduty or the use of misappropriatedinformation? Such practices are extremely different from traditional insider tradingas there is neither a breach of fiduciaryduty nor misappropriationof inside information. The ethical issues are similar to other market segmentation and price discriminationissues, in which different prices are charged to different customers. The ability to price discriminateacross segments can actually benefit large segments of the population who may receive lower prices because others, such as the high-speed traders, are paying more. The sale of faster access to information, especially by exchanges, raises additional ethical issues. There may be adverse effects on market quality that must be addressed. The moral distaste for the practice expressed by some stems from the seeming unfairness of a modern market structure that provides advantages to a small group of computerized traders.