Humble Pi: When Math Goes Wrong in the Real World

by Matt Parker

For financial data, time is literally money. The University of Michigan publishes an Index of Consumer Sentiment, which is a measure of how Americans are feeling about the economy (produced after phoning roughly five hundred people and asking them questions), and this information can directly affect financial markets. So it was important how this data was released. Once the new figures were ready, Thomson Reuters would put them on its public website at precisely 10 a.m. so everyone could access them at once. In exchange for this exclusive deal to release the data for free, Thomson Reuters paid the University of Michigan over $1 million dollars per year. Why were they paying to give the data away for free? In the contract, Thomson Reuters was allowed to give the numbers out five minutes early to its subscribers. So anyone who paid to subscribe to Thomson Reuters could get the data five minutes before the rest of the market and start trading accordingly. And subscribers to their “ultra-low-latency distribution platform” received the data two seconds earlier than that, at 9:54:58 (plus or minus half a second), ready to be fed straight into trading algorithms. In the first half second after this data is released, more than $40 million worth of trades can already have occurred in a single fund. The chumps who waited to get the data for free at 10 a.m. would find that the market had already adjusted. The ethics (and probably legality) are a bit blurry. Private institutions are a...