High-Speed Traders Prompt Business Wire to Study DelaysNoah Buhayar and Sam Mamudi
Business Wire is considering whether to encourage corporations that distribute press releases through its service to delay sending announcements until a few minutes after 4 p.m. New York time, reducing the odds of altering their stock’s closing price.
The risk, first reported by the Wall Street Journal, was highlighted on Dec. 5 when Ulta Salon Cosmetics & Fragrance Inc. distributed its worse-than-estimated earnings report through Business Wire, a division of Warren Buffett’s Berkshire Hathaway Inc. Because Ulta sent it before Nasdaq OMX Group Inc. set the price about 1 second after 4 p.m., the stock’s end-of-day level was about $4 less than it would have been had Ulta waited.
Closing U.S. share prices are set at the Nasdaq Stock Market and New York Stock Exchange through auctions that attract the biggest mutual funds, which don’t expect their orders to be influenced by news announced after 4 p.m. In the era of automated trading firms that react to information in thousandths or millionths of a second, even the 1-second trading opportunity that Ulta created is enough to influence prices.
“Having looked at these microsecond differences, if a client asked me what time they should go, and they want to go at market close, I’d recommend they go a couple minutes after,” Business Wire Chief Executive Officer Cathy Baron Tamraz said during a phone interview yesterday. “That would probably be more of a bullet-proof way to control what happens after the release is sent.”
Ulta’s stock closed at $118 on Dec. 5, down from $121.80 a second before 4 p.m., according to data compiled by Bloomberg. The stock dove after the company reported earnings excluding some items of 72 cents a share, missing the average analyst estimate of 74 cents, data compiled by Bloomberg show. On Dec. 6, they slumped 21 percent to $93.76.
Michael Shmarak, a spokesman for Bolingbrook, Illinois-based Ulta who works for public relations firm DKC, declined to comment on the company’s stock price.
Business Wire plans to speak with exchanges to learn more about their processes for setting closing prices, said Neil Hershberg, senior vice president of global media at the press-release distributor. While Business Wire may suggest clients delay sending statements until a few minutes after the close, it would be up to companies to decide what to do, Hershberg said.
Corporations using Business Wire to release information include Amazon.com Inc., United Parcel Service Inc. and Goldman Sachs Group Inc. PR Newswire is the other major U.S. press-release service. Bloomberg News distributes statements from both Business Wire and PR Newswire to its customers.
Nasdaq’s “closing auction in a specific stock is often completed within a few tenths of a second as our system executes auctions in thousands of stocks,” said spokesman Rob Madden. Nasdaq is responsible for setting Ulta’s end-of-day level because the company, which sells cosmetics and fragrances, lists its stock at the exchange.
Eric Ryan, a spokesman for IntercontinentalExchange Group Inc.’s NYSE, said the exchange stops taking new orders at exactly 4 p.m.
It took Nasdaq 1.7 seconds past 4 p.m. to close trading on June 28, one of the busiest days of the year because Russell stock indexes revised membership in its benchmarks, according to a statement.
“The whole point in having the earnings report at 4 p.m. is not to impact the closing auction,” said Dave Lauer, a consultant to Verdande Technology and critic of high-speed trading practices. “There’s certainly nothing malicious or nefarious going on here. It’s just a mistake.”