(Nanex)–We are surprised at how many people don’t realize that information does not travel instantly from point A to point B. It is limited by the speed of light, which under ideal conditions, takes 1 millisecond to travel 186 miles. Our experience analyzing the impact of hundreds of news events at the millisecond level tells us that it takes at least 5 milliseconds for information to travel between Chicago and New York. Even though Washington DC is closer to Chicago than New York, the path between the two cities is not as straight or optimized: so it takes information a bit longer, about 7 milliseconds, to travel between Washington and Chicago. It takes about 2 milliseconds between Washington and New York.
Therefore, if information is released in Washington, then New York will see it 2 milliseconds later, and Chicago will see it 7 milliseconds later. Which means we should see a reaction in New York (where stocks trade) about 5 milliseconds before a reaction in Chicago (where many futures, including the eMini trades). And this is in fact what we normally see when news is released in Washington.
However, the data, reflected in the charts below (compare 2 and 3), clearly shows that the reaction in New York was in the same millisecond as the reaction in Chicago. Also, the reaction was within 1 millisecond, meaning it couldn’t have possibly reached New York. Then there is the case that the information on the Fed Website was not easily parse-able – not enough for someone to commit well over a billion dollars to effectively buy all stocks, futures and options at any price.
We’d also like to note, that even Bloomberg was not aware of this practice, and when they asked the Fed, the reply was “no comment”.
1. December 2013 Gold (GC) Futures trades. Gold jumped the gun by 2.5 minutes. Lucky guess, or sneak peak?
4. GLD Showing Trades color coded by exchange.
5. December 2013 Gold (GC) Futures trades.
6. SPY Showing Trades color coded by exchange. Zooming out to 1 second of time.
7. December 2013 eMini (ES) Futures trades. Zooming out to 1 second of time.
8. December 2013 Gold (GC) Futures trades. Zooming out to 1 second of time.
9. GLD Showing Trades color coded by exchange. Zooming out to 1 second of time.
10. SPY Showing bids and asks color coded by exchange.