http://www.zerohedge.com/news/2013-05-12/fed-treasury-investigating-bloomberg-client-surveillance
Fed, Treasury Investigating Bloomberg Client Surveillance
As reported on Friday, the most recent example of a breach in informational Chinese walls was confirmed at Bloomberg, where it was discovered that reporters have the same degree of client surveillance as workers on the API/terminal side. The reason why this is problematic is that since Bloomberg is a monopolist in the financial terminal industry, with such competitor attempts as Reuters' Eikon being massive failures, virtually every finance professional needs a terminal (even if the rate of sale of such terminals is slowing down as a result of the ongoing financial margin headaches). Which means that Bloomberg journos, an increasingly competitive service to the likes of Dow Jones, Reuters and AP, may have had an unfair advantage when it comes to tracking their "prey" - Bloomberg's own clients.
According to Reuters, such client surveillance may have been what tipped of Bloomberg about Bruno Iksil's behavioral patterns while at JPM: "At JPMorgan, the bank's public relations staffers also fumed to one another last year that reporters called repeatedly to inquire whether Bruno Iskil, the "London Whale" trader who was part of a team that lost more than $6 billion in losses, had left the bank because he had not logged onto his terminal in several days, a source with direct knowledge of these discussions said. JPMorgan did not formally bring the matter to Bloomberg's attention, the source said. Bloomberg said it had no record of a complaint."
And now, following the original Goldman complaint which Bloomberg said ended such informational commingling, it is the turn of the Treasury and the Fed to complain. Again from Reuters:
Bloomberg LP customers, including the U.S. Federal Reserve and the U.S. Treasury, were examining on Saturday whether there could have been leaks of confidential information, even as the media company restricted its reporters' access to client data and created a position to oversee compliance in a bid to assuage privacy concerns.A Fed spokeswoman said on Saturday that "we are looking into this situation and have been in touch with Bloomberg to learn more." A source briefed on the situation said the Treasury Department was looking into the question as well.
Feigned surprise at the degree of information Bloomberg has on all its clients - Fed and Treasury included - aside, what is left unsaid in all of this is the simple question of just why is it material information what the Fed, arguably an entity that at least in a normal world should not have any day to day trade interactions with financial markets, looked up on its trading terminal.
Of course, the Fed's less than joyous response to being tracked externally via Bloomberg is well known. It was our little expose on Kevin Henry's activity status in late 2012 that caused him to go from "green", or reporting his presence, to "gray", or invisible.
Green:
And Gray (following this):
That said, not even we have any idea just which Equity, FX or Corp screens Henry, and the rest of the Fed staff were accessing. Or what stocks the NY Fed analyst/trader was engaged with. Only Bloomberg does.
For the sake of transparency, we hope that since Bloomberg-Steagall is very unlikely, just as it is unlikely that the big banks' trading and deposit business will ever be broken up again, at least not before the great reset, that at least Bloomberg will disclose what, if any, covert surveillance it was conducting on the Fed, and specifically which stocks the NY Fed's trading desk was daytrading.
Because in a world of the Russell 2000 trickle down wealth effect, we could all use a stock tip.
Finally, for everyone shocked, shocked that a firm can abuse client informational arbitrage, and even trade against its clients, we refer you back to our 2009 piece "Is Goldman Legally Frontrunning Its Clients?", or better yet, the January 2010 piece, "Goldman Admits To Frontrunning Clients Through Its Prop Desk":
The topic of Goldman frontrunning clients using its prop desk, which has long bothered Zero Hedge, and which in the past received Goldman's vehement refutation, seems to have resurfaced, and to have proven our initial speculations correct. Jane Lattin, assistant to Thomas Mazarakis, head of fundamental strategies, sent out an email to clients earlier, notifying them that the firm in the past has traded ahead of them in its Fundamental Strategies Group, aka its Prop Trading desk, which is, by definition, frontrunning: "The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading Ideas, at any time after we have discussed them with you. We will also discuss Trading Ideas with other clients,both before and after we have discussed them with you." This answers our repeated queries from July as to whether Goldman is legally front-running its clients for its own prop positions.Full Goldman letter:Dear client,We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading Ideas, at any time after we have discussed them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you.You should not consider Trading Ideas as objective or independent research or as investment advice. When we discuss Trading Ideas with you, we will not be acting as your advisor (including, without limitation, in relation to investment, accounting, tax or legal matters) and the provision of Trading Ideas to you will not give rise to any fiduciary or equitable duties on our part. We will not be soliciting any action based on Trading Ideas and it is your responsibility to seek appropriate advice.Any opinions that we express when we discuss Trading Ideas with you will be our present opinions only and we will not have any obligation to update you in the event of a change of circumstances or a change of our opinions. We prepare Trading Ideas based upon information that we believe to be reliable but we make no representation or warranty that such information is accurate, complete or up to date and accept no liability, other than for fraudulent misrepresentation, if it is not.If you have any concerns about any of these matters, please do not hesitate to contact us.Kind RegardsJane LattinAssistant to Thomas Mazarakis – Head of Fundamental Strategies
Of course, following the imposition of the Volcker Rule a few months later, which has sought to eliminate precisely this kind of orderflow frontrunning behavior, this has now become a "moot point"... surely.
http://www.businessinsider.com/bloomberg-used-private-data-to-spy-on-ben-bernanke-and-tim-geithner-2013-5
Bloomberg News Used Private Client Data To Spy On Ben Bernanke And Tim Geithner
Somehow, Bloomberg News always seemed to be a step ahead of me...
Both the Federal Reserve and the US Treasury Department are examining the extent to which Bloomberg-terminal usage by top officials might have been tracked by Bloomberg journalists, CNBC has learned.
A Fed spokesperson told CNBC that the central bank is looking into the situation and has been in touch with Bloomberg to learn more. A source said the Treasury Department is taking similar action.
Meanwhile, CNBC has learned from a former Bloomberg employee that he accessed usage information of the company's data terminals of Federal Reserve Chairman Ben Bernanke and former U.S. Treasury Secretary Tim Geithner.
The information appeared to concern general functions used by the officials and the frequency with which those functions — such as looking at a bond, equity markets or news — were accessed. The source said all Bloomberg journalists who knew of this capability of the terminal would have had access to the usage information of the officials. However, CNBC has no information that the data were either used by the employees for journalism or shared inappropriately.
In response to queries that Bloomberg journalists had access to officials data usage, a Bloomberg spokesman said, "What you are reporting is untrue" but declined to respond when asked what specifically was inaccurate. He also would not say whether the company had investigated journalists' access to this information.
CNBC is a competitor of Bloomberg in reporting and distributing business news on the web and on television.
The issue of Bloomberg journalists' access to individual data from the terminals was revealed in recent days when a reporter called a Goldman Sachs Group employee inquiring about a partner's employment status and noting the partner had not logged on to the terminal lately.
The incident prompted a complaint from Goldman and led Bloomberg to terminate the ability of reporters to monitor subscribers.
In a statement on its website, Bloomberg said, "Having recognized this mistake, we took immediate action. Last month we changed our policy so that all reporters only have access to the same customer-relationship data available to our clients."
The former Bloomberg employee who worked in the editorial section recalled calling up the information on Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner "just for fun" and displaying the information to new recruits "to show how powerful" the Bloomberg terminals were.
The former employee said he recalled seeing the functions used by the Fed Chairman and Treasury Secretary and the number of times those functions had been used. The person did not recall which specific functions he saw, but said it would have been at a broad level. For example, he said it would likely have been information that the official accessed a page such as global equity indexes, though not which markets specifically. He said it also could have included information that the user looked up bond spreads, but the information would not have shown what specific bonds were searched by the user.
Still, with thousands of functions, the information could apparently get quite specific. And knowing how often a user looked up individual information and how often the user was logged in could provide valuable information.
A JP Morgan Chase source told CNBC that, "Multiple Bloomberg reporters very openly were using terminal login data to determine when traders were suspended and/or let go — during the London Whale situation, as well as during other rounds of layoffs."
A Quartz story (www.qz.com) said Bloomberg journalists had accessed a transcript of a call of former Fed Chairman Alan Greenspan to the company's help desk. The story said the information was not used in any editorial pieces written by journalists.
http://www.economicpolicyjournal.com/2013/05/several-hundred-bloomberg-reporters-may.html
SATURDAY, MAY 11, 2013
"Several Hundred" Bloomberg Reporters May Have Extracted Private Subscriber Information
NYT is getting into the act and reporting on the terminal spying conducted by Bloomber reporters:
I am aware of a money manager, back in the old days, who paid a reporter to show up at the headquarters of the Bureau of Labor Statistics in Washington D.C. and grab the employment report before it was published across the wires. Back then, the BLS would release a hard copy of the number to reporters 15 to 30 minutes before it was to be officially released. LOL, the report would have stamped on it "Embargo, not to be released until x time." But the reporter on the payroll of the money manager, as soon as he had his copy, would run across the street in front of the BLS headquarters to Union Station, grab a payphone and call the numbers into the money manager on Wall Street who was waiting for the call so he could put on bond trades ahead of the number being publicly released.
I am also aware, way back when, of a hedge fund-type operator, who would occasionally be tipped off minutes before news came across the Dow Jones wire. I'm not sure, who his source was and it didn't happen often, but when it did, it was valuable information that you could trade for serious $$$.
Anyone that tells you that information is not "scarce" and not valuable and gives the impression it is disseminated to the entire world simultaneously has no clue.
A shudder went through Wall Street on Friday after the revelation that Bloomberg News reporters had extracted subscribers’ private information through the company’s ubiquitous data terminals to break news.Although anti-IP types would have you believe that no damage is done when information spreads beyond initial holders of information that simply is not necessarily true, as evidenced by the concern by Wall Street firms that information on their terminals was used by Bloomberg reporters. Information can be very valuable and firms will pay good money to get at it. Sometimes they will pay good money to just get the information ahead of others.
The company confirmed that reporters at Bloomberg News, the journalism arm of Bloomberg L.P., had for years used the company’s terminals to monitor when subscribers had logged onto the service and to find out what types of functions, like the news wire, corporate bond trades or an equities index, they had looked at. Bloomberg terminals, which cost an average of more than $20,000 a year, are found in nearly every banking and trading company.
Bloomberg said the functions that allowed journalists to monitor subscribers were a mistake and were promptly disabled after Goldman Sachs complained that a Bloomberg reporter had, while inquiring about a partner’s employment status, pointed out that the partner had not logged onto his Bloomberg terminal lately.
The incident led to broader concerns about the line at Bloomberg between its lucrative terminal business and the hypercompetitive newsroom, threatening to undermine the credibility of both. In a secretive world that thrives on opacity, traders and financial firms jealously guard every speck of information about their activity to avoid tipping their hand on their trades and investments.
“On Wall Street, anonymity is critically important. Secrecy and the ability to cover one’s tracks is paramount,” said Michael J. Driscoll, a former senior trader at Bear Stearns who now teaches at Adelphi University. He added: “If Bloomberg reporters crossed that line, that’s an issue.”
The news gathering technique appears more widespread than the Goldman incident, which was first reported by The New York Post. A preliminary analysis at Bloomberg revealed that “several hundred” reporters had used the technique, a person briefed on the analysis said. (Bloomberg employs more than 2,400 journalists worldwide. A spokesman declined to comment on the analysis and said no reporters had been fired.)
There are also fears that the monitoring may have gone beyond Wall Street. Banking regulators at the Federal Reserve are examining whether their own employees were subject to tracking by Bloomberg reporters, according to people briefed on the matter.
I am aware of a money manager, back in the old days, who paid a reporter to show up at the headquarters of the Bureau of Labor Statistics in Washington D.C. and grab the employment report before it was published across the wires. Back then, the BLS would release a hard copy of the number to reporters 15 to 30 minutes before it was to be officially released. LOL, the report would have stamped on it "Embargo, not to be released until x time." But the reporter on the payroll of the money manager, as soon as he had his copy, would run across the street in front of the BLS headquarters to Union Station, grab a payphone and call the numbers into the money manager on Wall Street who was waiting for the call so he could put on bond trades ahead of the number being publicly released.
I am also aware, way back when, of a hedge fund-type operator, who would occasionally be tipped off minutes before news came across the Dow Jones wire. I'm not sure, who his source was and it didn't happen often, but when it did, it was valuable information that you could trade for serious $$$.
Anyone that tells you that information is not "scarce" and not valuable and gives the impression it is disseminated to the entire world simultaneously has no clue.
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