The Wall Street Journal published an article Tuesday about holes in the government system for releasing economic data. With so much attention focused on low latency trading, the “Hash Crash,” and the Thompson Reuters Early Release of Michigan Sentiment, there has been a lot of negative an misleading information about event trading. So I wanted to make sure I explained the process in more detail than the Journal did Tuesday, and clarify what the rules are for the US Government Lock-ups.
A link the WSJ article can be found here. The WSJ claims three ways you can cheat the system, described in the picture below.
All three of these options directly violate the rules set in place by the Department of Labor and the Bureau of Economic Analysis. The report was ironically not available to the public at the time the article was published. We were waiting the entire day for all of the details to be released. If it is true that the Department of Labor and the Bureau of Economic Analysis have failed to enforce their own rules, heads should roll. I reached out to the Office of Inspector General at the Department of Commerce to obtain a copy of their report. A representative said that the report would be released late Tuesday on the following website: http://www.oig.doc.gov/OIGPublications/OIG-Report-of-Investigation-Bloomberg-Financial-News.pdf
For a member of the media to be able to use wifi to leak a story, or plug in their own “secret wire,” there would have to be much more than neglect for their own rules. How could they possibly be given the ability to just turn off the black box? That part is a little hard to beleive. All three are hard to believe, to be honest. Any one of those possibilities would constitute a blatant disregard for our own fair markets. It’s a bold faced lie to the general public and anyone trading off of this information. The SEC should be going after the DOL and BEA for misleading investors.
While it is greatly disturbing to find out that the Lock-ups are not enforcing their own rules, it is comforting that the FBI found “no evidence of embargo violations.” The system was set up so that only accredited news agencies would have access to the Lock-ups. Bloomberg did the right thing by reporting a potential breach in the system, but did they have any choice? They would face massive scrutiny, prosecution, removal from the Lock-ups and irreparable damage to their reputation if they knowably violated Department of Labor Policy.
Participants in each lock-up are prohibited from communicating in any manner with anyone outside of the room
during the embargo period, unless expressly authorized by DOL personnel.
News Room participants will use standard configuration computer and telephone equipment – including
hardware, software, cabling and wiring – supplied and maintained by the Department. At its discretion, the
Department may assign news organizations dedicated work stations or randomize seating at lock-ups. The
Department uses a master wall switch to control connectivity of all equipment. Participants may not load
information onto equipment via a disc drive, USB port or other peripheral device, or in any other way.
News organizations are prohibited from bringing into the News Room and Television Lock-up – as well as
installing and using – any type of equipment or device, including computers, cellular and other handheld
electronics, cameras, calculators, and storage media such as discs and flash/thumb drives. These items, along
with outerwear, bags, umbrellas and other personal effects, are required to be placed in designated lockers
within the Department’s Frances Perkins Building prior to entering a lock-up facility. Power for all devices
must be switched off before being placed in the designated lockers.
They make it very clear that you can’t bring in any of your own electronic equipment. That means no cell phones, personal computers, cameras, calculators, usb or flash drives, etc… How could someone possibly hook up their own secret wire? This is supposed to be one of the most secure places on the face of the earth. We’ll see if the report is legit. It still hasn’t been released.
UPDATE: (5PM Central 8/6/2013) THE REPORT HAS BEEN RELEASED. Click here to view the report.
Some information has been concealed from the report for legal reasons.
SUMMARY OF INVESTIGATION
The investigation found no evidence of an intentional violation of Federal law; the U.S.
Department of Justice declined criminal prosecution in this case. During the course of this
investigation a number of operational vulnerabilities were identified that could adversely impact
the release of time-sensitive economic data. Notably, computer forensic analysis of the
Bloomberg equipment obtained from the DOC Press Lockup Room disclosed “unrestricted
data transfer through the black box switch in its inactive, i.e. powered-down, mode.” In
addition, the FBI advised that concealed IT devices may still be in use at Federal Press Lockup
Rooms, including DOC. Such devices could compromise restricted transmissions. These
findings and recommendations were presented to a number of officials from various U.S.
Government agencies which provide sensitive economic data, including DOC.
During a follow-up Interview on August 3, 2012 with the FBI and DOC/OIG, -explained
that Bloomberg officials conducted lab tests using the proposed concept(s) from their vendor
and a black box similar to the one used in the DOC Press Lockup Room. They discovered they
could bypass the kill switch on the black box that prevents data from flowing through it. In fact.
Bloomberg identified two ways to “work around” the switch: going through the ground
shielding to bypass the cable and/or run alternating current through the kill switch itself.
One specific finding from the FBI/CART analysis report noted the following statement:
“Unrestricted data transfer through black box switch in its inactive, i.e. powered-down. mode.”
The FBI also communicated a number of other issues and concerns recording the practices and
procedures for the DOC and DOL Press Lock-up Rooms that could adversely impact the timed
release of sensitive economic data.
On December 21, 2012, the FBI disclosed that during a recent interview they conducted with ***** official, the issue of concealed devices and their use within Federal Government Lock-up rooms was discussed. *****************
The FBI opined the fact these devices could be concealed to intentionally disguise their presence – regardless of intent
or motive – should be made known to the proper personnel (Attachment 12)
So, there is no evidence that equipment was disguised and brought into the Lock-ups. I don’t see any evidence of a “secret wire.” Bloomberg put a Chronos machine in place for the purpose of latency reduction that basically broke the black box… but they didn’t use it. That part sounds like it could be BS to me. Other than that, there is nothing in here that is damning to the BLS, DOL, or ESA. The FBI should follow through and make sure there are no concealed devises for data dissemination, but I doubt they’ll find anything.
– See more at: https://algofast.com/2013/08/DOL%20Government%20Lockup%20Security%20for%20Economic%20Releases#sthash.GiKS4jJX.dpuf