UPDATE 1-US Labor Department needs to improve how it releases data -panel

Thu Jan 2, 2014 7:00pm EST
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By Margaret Chadbourn

WASHINGTON Jan 2 (Reuters) - The U.S. Labor Department should either tighten the procedures that it uses to release market-sensitive data to the media or scrap them altogether and distribute the data directly to the public, a watchdog for the department said on Thursday.

The recommendation to tighten the so-called lockup process, specifically the department's weekly jobless claims figures, was included in an audit released by the Labor Department's Office of Inspector General. The panel was reviewing the process in an effort to prevent the possibility that some investors could have an unfair competitive advantage in buying and selling stocks, bonds and other trading assets.

Under the lockup procedure, media outlets are "locked" in a room where they receive embargoed copies of data reports, usually about 30 minutes before the designated release time, and do not have the ability to post stories until the embargo is lifted.

The lockups were initiated in the mid-1980s.

Government officials are looking to mitigate the crush of high-speed trading systems that have set up systems to retrieve information seconds ahead of the public. High-speed trading has grown significantly in the past decade and is often a key part of some hedge funds' investment strategies.

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.

"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.   Continued...