“To every disadvantage, there is a corresponding advantage” – W. Clement Stone

We all know that the smart money on Wall Street gets its information faster than the rest of us through news reading algorithms. It’s something that many (most retail investors in particular) may think is unfair, but both our securities and futures regulators (SEC & CFTC) have not prevented the practice. However, the high-speed release of news is the same news that the rest of us read moments later with our eyes and subsequently our brains interpret as bullish or bearish rather than scanned in an instant for keywords by a computer.

Perhaps the regulators can justify the speed advantage precisely because it is the same news, that is delivered to both news-reading algos and human beings. The SEC & CFTC may have determined that how fast one receives information is beyond their purview, as they don’t dictate internet speed or computer memory. But this week’s market action caused some of us to question not just the speed at which news can be delivered, but rather why some news fell through the cracks, despite its obvious potential impact on markets.

The news I’m speaking of is the news that the CFO of Huawei had been arrested and detained in Canada for violation of the international ban of sales of technology to Iran. The import of this is obvious, as Huawei is the Apple of China and the detention of such a senior official could easily derail the fragile beginnings of our trade negotiations with China. It was this vital bit of data that was not disseminated when it occurred on Saturday December 1st, but rather the evening of Wednesday December 5th that further pitched the DJIA into another 760 point decline today, prior to the dramatic recovery.

Market participants like me were stunned to know that it is highly likely that someone may have had access to this information well ahead of that December 5th reporting. Such knowledge would have allowed those persons to anticipate the market’s reaction to same and sell, or establish short positions as the market rose 500 points Sunday (December 2nd) as through trading sessions Monday and Tuesday.

Why this news was not reported is indeed a mystery. The arrest came in Canada, not some backwater communist dictatorship. This was not embargoed information, news that is held until a prescribed time for release, such as tomorrow’s employment data. This was apparently overlooked by nearly every news agency due to the focus of the news gathering world on the G20 in Buenos Aries. But because it was overlooked by nearly everyone, doesn’t mean someone didn’t get the head start of a lifetime and profits to match.

I say that because it is my firm conviction that the person(s) that did react to the news of that Huawei executive’s arrest were first very active shorting in the Sunday night run in S&P 500 futures, subsequently establishing massive trades in the VIX, the fear gauge of the S&P 500. The late dissemination of the news allowed these traders to profit on the short sales of S&P 500 futures and ensuing panic as the confluence of a breach of the S&P 500’s 200 day moving average, Bond inversion and lack of commentary from China on what was or was not agreed to at that infamous G20 dinner.

I commented on CNBC as to the strange nature of the action in the VIX and its futures and puts as our markets melted on Tuesday and again today (Thursday). I believe that unusual trading may indeed have been the parties that had access to the news. When I speak of what appears to be insider trading through various derivative contracts I frequently say it looks like someone is trading as if they had tomorrow’s newspaper today.  If I’m right someone had Wednesday’s news last Saturday. Its a trade Bobby Axelrod from the Showtime feature “Billions” would love.

“I know the world isn’t fair, but why isn’t it ever unfair in my favor?”

–Bill Watterson