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I've heard rumors that visa uses its purchase records as a leading indicator to trade in stocks. Having all of these sales records gives them a leading indicat

I've heard rumors that visa uses its purchase records as a leading indicator to trade in stocks. Having all of these sales records gives them a leading indicator of how a particular retailer is performing, before the company releases any statements, or speaks with analysts. While the concept sounded simple, I'm not sure if I believe this because I had no way of knowing how large of an advantage it would translate into. Has anyone else here heard these kinds of stories about visa or banks? Is there are reason why this kind of thing would be illegal or ineffective?

byrneseyeview 17y ago
I know of one financial firm that did this. They didn't trade the specific stocks, but they used their credit card data to predict what the Fed would do. Doing it one stock at a time might raise some eyebrows; it sounds close to insider trading. But it's accepted that people who bet on interest rates will gather lots of data--since every economic indicator you can imagine will have some effect on rates, it's both impossible to be a true "insider" and impossible not to have some degree of insider information.
- anamax 17y ago
  > Doing it one stock at a time might raise some eyebrows; it sounds close to insider trading. That's not the definition of "insider trading". Insider trading is you trading on your company's info - the company is free to do so. For example, Google employees can't trade Rackspace on knowledge that Google is about to make a big deal with Rackspace. Google, on the other hand, is free to do so. From http://en.wikipedia.org/wiki/Insider_trading http://en.wikipedia.org/wiki/Insider_trading "In the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned, but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information likely to have an effect on the company's share price, the duty the corporate insider owes the company is now imputed to the friend and the friend violates a duty to the company if he or she trades on the basis of this information."
  - byrneseyeview 17y ago
    The definition of insider trading is alarmingly flexible; it's safer to avoid the appearance of impropriety, since that can still get you convicted. I wasn't aware that a corporation could trade based on insider knowledge. That seems very unlikely; it would imply that, e.g. Boesky was busted because his fund was organized as a limited partnership. And wouldn't a corporation with one owner be equivalent to that owner in terms of economic interest? Could I just form byrneseyeview Inc. to take advantage of my insider knowledge? Do you have a source for the statement that corporations can engage in insider trading?
    - Tuna-Fish 17y ago
      I think you misunderstood his point. Any entity is allowed to trade on information that's legally available to them without violating any duty of trust -- if for example, Google decides to buy rackspace, it is perfectly legal for them to buy call options in front of the announcement to profit from the spike in value caused by the announcement, as no duty of trust is broken. It would be, however, illegal for employees, shareholders or indeed anyone hearing about Google's intentions about the purchase to buy those options, as they would be breaking their duty of trust to Google by doing so. This holds regardless of the legal status of the entity in question -- a corporate shareholder getting privileged information from Google before the announcement would be just as screwed as an employee.
      - byrneseyeview 17y ago
        I assumed that a deal with Rackspace meant a purchase of Rackspace products. I agree that you can buy a stock before trying to buy out the company--but you can do that as an individual, too. But in this case, the company trading on credit card data is clearly analogous to a Google employee, not to Google. They have material information about the prospects of another company, and they use that information to trade.
        Tuna-Fish 17y ago
        > But you can do that as an individual, too. If you are a secretary working for Google, and overhear talks about the buyout and proceed to load yourself on the stock, SEC is going to want to have a word with you. > I assumed that a deal with Rackspace meant a purchase of Rackspace products. I don't think this would be illegal either -- with whom would Google break it's duty of trust if they bought half of Rackspace just before announcing a large deal? > They have material information about the prospects of another company, and they use that information to trade. I have material information of the prospects of every company I trade -- I wouldn't trade them without. What turns this into illegal insider trading is receiving that information from a source that is bound by duty of trust to not speak about it. As long as the material information about the prospects of a company does not originate from the company in question, or anyone else bound to not divulge it, it's not insider trading. When visa data mines credit card transactions, the information so gained can be freely used to whatever purpose without fear from insider trading accusations. That being said, I do not think it's moral or right -- the laws just were written before large-scale data mining was feasible.
arthurdent 17y ago
whoa. insanely cool. Given the market penetration that visa has, they'd get data that's fairly representative of the US (or world?) spending habits and i'd assume it'd be HUGELY effective. I doubt that they do it, and if that became public knowledge I have to imagine they'd come under some serious fire, but I don't think its illegal. The notion of running a credit card company basically for free as a way to get information about the economy and made MUCH more profitable trades in the financial markets really appeals to me. Friend of mine has been working on using google trends/blogs as such an indicator, but its a lot harder to tease tradable information out of that sort of data.
- kurtosis 17y ago
  Yeah it sounds cool - I don't know that this is real just a rumor. A lot of things that sound cool turn out to have serious problems. I saw something on here a while about a "marketplace for data" - I can't remember what it was called - but it make me wonder how one would determine the price for a data feed or open source intelligence - it seems that a fair price for a data stream should be how much of a profit you can make by trading against people who don't have access to the data. But it seems to me that if monitoring revenues of retailers was a really big advantage you could do almost as well by conducting a small well designed survey like the FED does. VISA's volume of data is probably deep into large N range of the sigma/sqrt(N) sampling error.
  - Tuna-Fish 17y ago
    As actual moves on retail chains are probably quite small on a quarter-by-quarter basis, to be able to make any kind of money on this kind of information you have to be levered up to your ears. Which also means that if you are wrong, you are going to lose a lot of money. Getting that error probability way way down is a priority.

byrneseyeview 17y ago

I know of one financial firm that did this. They didn't trade the specific stocks, but they used their credit card data to predict what the Fed would do. Doing it one stock at a time might raise some eyebrows; it sounds close to insider trading. But it's accepted that people who bet on interest rates will gather lots of data--since every economic indicator you can imagine will have some effect on rates, it's both impossible to be a true "insider" and impossible not to have some degree of insider information.

anamax 17y ago
> Doing it one stock at a time might raise some eyebrows; it sounds close to insider trading. That's not the definition of "insider trading". Insider trading is you trading on your company's info - the company is free to do so. For example, Google employees can't trade Rackspace on knowledge that Google is about to make a big deal with Rackspace. Google, on the other hand, is free to do so. From http://en.wikipedia.org/wiki/Insider_trading http://en.wikipedia.org/wiki/Insider_trading "In the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned, but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information likely to have an effect on the company's share price, the duty the corporate insider owes the company is now imputed to the friend and the friend violates a duty to the company if he or she trades on the basis of this information."
- byrneseyeview 17y ago
  The definition of insider trading is alarmingly flexible; it's safer to avoid the appearance of impropriety, since that can still get you convicted. I wasn't aware that a corporation could trade based on insider knowledge. That seems very unlikely; it would imply that, e.g. Boesky was busted because his fund was organized as a limited partnership. And wouldn't a corporation with one owner be equivalent to that owner in terms of economic interest? Could I just form byrneseyeview Inc. to take advantage of my insider knowledge? Do you have a source for the statement that corporations can engage in insider trading?
  - Tuna-Fish 17y ago
    I think you misunderstood his point. Any entity is allowed to trade on information that's legally available to them without violating any duty of trust -- if for example, Google decides to buy rackspace, it is perfectly legal for them to buy call options in front of the announcement to profit from the spike in value caused by the announcement, as no duty of trust is broken. It would be, however, illegal for employees, shareholders or indeed anyone hearing about Google's intentions about the purchase to buy those options, as they would be breaking their duty of trust to Google by doing so. This holds regardless of the legal status of the entity in question -- a corporate shareholder getting privileged information from Google before the announcement would be just as screwed as an employee.
    - byrneseyeview 17y ago
      I assumed that a deal with Rackspace meant a purchase of Rackspace products. I agree that you can buy a stock before trying to buy out the company--but you can do that as an individual, too. But in this case, the company trading on credit card data is clearly analogous to a Google employee, not to Google. They have material information about the prospects of another company, and they use that information to trade.
      - Tuna-Fish 17y ago
        > But you can do that as an individual, too. If you are a secretary working for Google, and overhear talks about the buyout and proceed to load yourself on the stock, SEC is going to want to have a word with you. > I assumed that a deal with Rackspace meant a purchase of Rackspace products. I don't think this would be illegal either -- with whom would Google break it's duty of trust if they bought half of Rackspace just before announcing a large deal? > They have material information about the prospects of another company, and they use that information to trade. I have material information of the prospects of every company I trade -- I wouldn't trade them without. What turns this into illegal insider trading is receiving that information from a source that is bound by duty of trust to not speak about it. As long as the material information about the prospects of a company does not originate from the company in question, or anyone else bound to not divulge it, it's not insider trading. When visa data mines credit card transactions, the information so gained can be freely used to whatever purpose without fear from insider trading accusations. That being said, I do not think it's moral or right -- the laws just were written before large-scale data mining was feasible.

arthurdent 17y ago

whoa. insanely cool. Given the market penetration that visa has, they'd get data that's fairly representative of the US (or world?) spending habits and i'd assume it'd be HUGELY effective. I doubt that they do it, and if that became public knowledge I have to imagine they'd come under some serious fire, but I don't think its illegal. The notion of running a credit card company basically for free as a way to get information about the economy and made MUCH more profitable trades in the financial markets really appeals to me. Friend of mine has been working on using google trends/blogs as such an indicator, but its a lot harder to tease tradable information out of that sort of data.

kurtosis 17y ago
Yeah it sounds cool - I don't know that this is real just a rumor. A lot of things that sound cool turn out to have serious problems. I saw something on here a while about a "marketplace for data" - I can't remember what it was called - but it make me wonder how one would determine the price for a data feed or open source intelligence - it seems that a fair price for a data stream should be how much of a profit you can make by trading against people who don't have access to the data. But it seems to me that if monitoring revenues of retailers was a really big advantage you could do almost as well by conducting a small well designed survey like the FED does. VISA's volume of data is probably deep into large N range of the sigma/sqrt(N) sampling error.
- Tuna-Fish 17y ago
  As actual moves on retail chains are probably quite small on a quarter-by-quarter basis, to be able to make any kind of money on this kind of information you have to be levered up to your ears. Which also means that if you are wrong, you are going to lose a lot of money. Getting that error probability way way down is a priority.