Was the Chicago PMI Leaked?

Conspiracy theorists are buzzing this morning regarding the release of the weaker than expected Chicago PMI. Economists were expecting a level of 52.0, but the actual level came in well below 50 (46.1). Even though the report was released to the general public at 9:45 ET, the S&P 500 began its nosedive minutes before the official release of the report. At first glance, most would agree that the report was leaked.

click to enlarge

While everyone likes a scandal these days, a deeper look at an intraday chart of the S&P 500 and the firm that compiles the Chicago PMI (Kingsbury International) shows that there was most likely nothing nefarious taking place. The S&P 500 certainly did decline prior to the official release, but traders should be aware that anyone who wants early access to this report can do so provided they are willing to pay for it.

On the company's website, Kingsbury describes the Chicago PMI as, "a proven monthly ‘first look’ at business, government and NGO economic activity in the USA." They then go on to say that subscribers to Kingsbury's data will receive "access to this market-moving data 3 minutes before public release." In other words, Kingsbury will 'leak' the report to anyone who is willing to pay at least $200 per month.

With this information in mind, another look at an intraday chart of the S&P 500 shows that today's decline began at 9:42, which was (not coincidentally) three minutes before the official release of the Chicago PMI when Kingsbury alerts their subscribers to what the official release will be. While there appears to be nothing illegal taking place, it does provide another example of how the market is stacked against the individual investor.

Comments

[Rob Bryant:]

Given the markets recovery this afternoon perhaps we could draw a further conclusion that the folks who are paying for this information are also poor at analyzing what the data will mean to the market. No doubt there are other factors at play to be considered but a three minute window to make a knee jerk reaction that successfully gives those receiving the information an advantage would require a skill that on average this set may not have. In otherwords sometimes there is such a thing as too much information.

Sep 30 03:07 PM

[nprfreak:]

Interesting. I had assumed that players were just positioning against a possible "worse than expected" report.

Sep 30 03:09 PM

[Burt:]

People who would pay for this info 3 minutes prior could care less what the market is going to do past 9:50am. The simple fact is knowing the number prior gives you a view into the short term future. Futures traders make a killing off of trades like this. S&P futures dropped almost 20 handles once the number came out. To think that people who pay for this early look are long term investors is completely ignorant....a trend in the majority of the commentaries I read on this website.

Sep 30 03:42 PM

[Jeff Miller:]

Nice article. The same thing is true of other subscription reports. It is not like government data where all are equal....

Sep 30 08:03 PM

[Moon Kil Woong:]

Hmmm, I think the newspapers should do fundamental market trend research and release to subscribers early as well. It seems like a good way to sell subscriptions and well worth the subscribers money. Either that or start a stock market and give evveryone a late ticker unless you pay for at the momment updates. If that doesn't work start an off exchange flash program.

There are a million ways to make money off of providing assymetric information in this market and someone is pretty much plugging each hole to make as much money off of the dumb fools (unfortunately that would be us) as they can.

Sep 30 11:12 PM

[433144:]

I only follow a dozen contributors on Seeking Alpha, and B.I.G. is up there as one of my favourites. That being said, I must disagree with your conclusion to the posting with regard to the Chicago PMI. $2.4k per year is a small price to pay relative to what you could have made from trading the Mini S&P when the data was released to subscribers. Whilst the magnitude of the sell-off is still unknown on a lower number, 10 points on 1 Mini S&P would have almost paid for a years subscription. Whilst I don't agree in principal that subscribers should be able to access data before anyone else, in my opinion the fee in itself is not out of reach of the individual investor.

Oct 01 05:17 AM

[Steven Cord...:]

Kind of like the Martha Stewart saga. Had she just held her shares of Imclone she would have not run afoul of the law not gone to prison and made a fortune. This too is a case of too much information--or too much inside information.


On Sep 30 03:07 PM Rob Bryant wrote:

> Given the markets recovery this afternoon perhaps we could draw a
> further conclusion that the folks who are paying for this information
> are also poor at analyzing what the data will mean to the market.
> No doubt there are other factors at play to be considered but a three
> minute window to make a knee jerk reaction that successfully gives
> those receiving the information an advantage would require a skill
> that on average this set may not have. In otherwords sometimes there
> is such a thing as too much information.

Oct 01 09:25 AM

[Tony Petroski:]

The title of the article: "Was the Chicago PMI Leaked?"

Answer: Yes.

From the article: "While everyone likes a scandal these days,"

Everyone likes a scandal everyday.

Do I invest based on the Chicago PMI?

No.

Oct 01 10:24 AM

[MarketGuy:]

Throw it in the "Wall Street culture" file along with High Frequency Trading. Just another example of the gapping variances inherent in the trading world.
The only benefit for traders with this particular news is they know how to adjust to it. Just simply watch S&P 3 mins prior.

Oct 01 10:33 AM

[logicalman:]

10 points on mini s&p = 500.$ not 2400.$ !!!


On Oct 01 05:17 AM 433144 wrote:

> I only follow a dozen contributors on Seeking Alpha, and B.I.G. is
> up there as one of my favourites. That being said, I must disagree
> with your conclusion to the posting with regard to the Chicago PMI.
> $2.4k per year is a small price to pay relative to what you could
> have made from trading the Mini S&P when the data was released
> to subscribers. Whilst the magnitude of the sell-off is still unknown
> on a lower number, 10 points on 1 Mini S&P would have almost
> paid for a years subscription. Whilst I don't agree in principal
> that subscribers should be able to access data before anyone else,
> in my opinion the fee in itself is not out of reach of the individual
> investor.

Oct 01 10:37 AM

[jbde:]

That fact that some can pay for the report does not make it 'unleaked'
Anyone getting advance information on a traditional market moving report is a crook. GS probably pays a lot more for 15mins advance 'peak.'
This practice of making a buck on such a report prior to public disclosure should be stopped - period!

Oct 01 11:00 AM

[frosty:]

another (small) nail in the coffin of the efficient market hypothesis which relies on investors having free and equal access to information.

Oct 01 11:11 AM

[talld:]

That wasn't the actions of a big fund as they are much more adept at unloading their holdings without causing such a dramatic dip in prices. Whoever was selling there was likely inexperienced.

What good does a three minute head start do to a fund which has 100 billion in SP500 ETFs? Whomever caused this 20 point fall was a relative novice, and not worth more than a few paltry billion.

Oct 01 09:24 PM

[pelicanpete:]

Bastards!

Oct 02 03:53 AM