A U.S. watchdog on Thursday recommended the government change how it issues market-sensitive data, specifically weekly jobless claims figures, in a move that could end the process of releasing certain economic snapshots through the media.
Continue Reading Below
The recommendation was included in an audit released on Thursday by the Labor Department's Office of Inspector General. The panel was reviewing the process in an effort to prevent the possibility of traders or anyone working inside the so-called lockups from having an unfair competitive advantage.
Lockups are used by the government to release market-sensitive data to the public. During a lockup, media outlets receive embargoed copies of data reports and are "locked" in a media room without the ability to post headlines and stories until the embargo is lifted.
The inspector general suggested that the Labor Department tighten lockup rules and procedures, or scrap them altogether.
In addition to the unemployment numbers, the lockup process, in use at several news outlets, covers releases on economic growth, home sales and inflation, among other things.
The lockups allow media outlets to sell data reports to clients, including high-frequency, or algorithmic, trading firms. The firms use computerized trading techniques ahead of individual traders based on the reports.
Continue Reading Below
"Algorithmic trading introduces new security variables into a lockup system not originally designed to guard against market-moving distributions that could be caused by the release of government data to certain traders just seconds before the rest of the general public," the report said.
"A few years ago, a few seconds here or there would not have had much of an impact. Today, fractions of a second can equate to millions or even billions of dollars in market movements."
The report also found that the Employment and Training Administration, which compiles the jobless claim report, had deficiencies in its procedures governing release of the data.
The audit was mainly focused on the department's weekly report on jobless claims, but the panel's recommendations could have a broader impact on how other government agencies consider cracking down on lockups.
In response to the report, the Labor Department said in a statement: "We agree with the OIG that it is appropriate to consider ending the (unemployment insurance) weekly claims press lockup."
The Department said it had already started exploring the value of the press lockup and intends to continue its consideration of how best to disseminate the report to both the public and to news organizations.
The Labor Department said it agrees with some of the issues the audit raised surrounding the efficacy of the lockup process.
Many government officials have already considered potential security problems and have tightened procedures this past year to ensure there are not any broken embargoes.
(Reporting by Margaret Chadbourn; Editing by Dan Grebler)