What’s a ‘Lockup’ and Why It Matters for Markets

(Bloomberg) -- The news media faces new limits on its special access to a trove of market-moving data in the U.S. The U.S. Labor Department said it will ban computers from so-called lockup rooms, where journalists receive advance access to major economic reports. The Agriculture Department made changes to its lockup system in 2018. The shift is designed to remove any edge that subscribers of news services have over the general public, even if it’s just a matter of seconds or milliseconds. Critics say the move threatens to create logjams on official websites and hand the advantage to tech-savvy traders or news outlets.

1. What kind of data are we talking about?

The Labor Department disseminates the influential monthly jobs report as well as inflation figures and weekly unemployment claims. At the lockups it hosts for major reports, journalists receive the data in a secure room, write stories on computers disconnected from the internet, and transmit them when connections are restored at the release time, typically 30 to 60 minutes after the lockups begin. Before entering the room, journalists are required to leave their personal effects, including mobile phones, smartwatches and even pens, in lockers and then walk through a metal detector -- a rule designed to keep them from electronically transmitting embargoed information.

2. What’s the point of a lockup?

Permitted but not required by government regulations, lockups have been a mainstay for U.S. media for almost four decades. They have been designed to give reporters time to digest figures on market-moving data and make sure they are accurate before distributing them. Statistics agencies and central banks in the U.K. and Canada use similar lockup procedures, as does the U.S. Federal Reserve. Markets can fluctuate wildly in the moments after data is released, as trading houses try to exploit surprises in the numbers to buy and sell securities and commodities.

3. What did the Agriculture Department do, and why?

In August 2018, the USDA scaled back lockups covering farm products, particularly the closely watched monthly crop forecasts that typically move markets in soybeans, corn and wheat. The reason given at the time was that because of technological changes, such as the media’s use of high-speed fiber optic cable lines, journalists can get information to their readers faster than federal agencies can put it on their websites. That, according to the government, creates an unfair advantage.

4. What are the risks?

The shift could spur an arms race among high-speed traders to get the numbers first and profit off the data, raising questions about fairness in multitrillion-dollar financial markets. Without news services like Bloomberg and Reuters transmitting their reports at the precise release time and allowing additional access points, the lockup changes put the burden on the government departments to ensure that their websites remain accessible while being bombarded by everyone from algorithmic traders to the general public.

5. Can U.S. government websites cope?

Agency websites aren’t immune from attack or technical issues that could limit public access. In November, for about six minutes after the release time of an important report, the USDA website produced an error message.In 2013, the Obamacare website crashed when millions tried to access it and register under the then-new health care program, preventing Americans from enrolling in coverage until months later. In January, a pro-Iran group hacked the U.S. government website of the Federal Depository Library Program and posted messages related to the U.S. killing of a top Iranian commander.

6. What will this mean for markets going forward?

Traders will rely on journalists less and more on themselves for information. News organizations with advance notice are under great pressure to get data right, and almost always do. Without them, victory will go to whomever can scrape and trade data fastest. Meanwhile, misinformation and misinterpretation has a higher chance of influencing markets, meaning longer periods of potential volatility as the market digests information on its own.

The Reference Shelf

• Wall Street prepares for algo wars.
• U.S. moves invite confusion and risk, according to Bloomberg Opinion’s Daniel Moss.
• The USDA explains why news organizations don’t have advance access (and how it previously explained why they had advance access).

To contact the reporters on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net;Vince Golle in Washington at vgolle@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Grant Clark

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