The issue of the Bank of England’s news conferences being “hacked” raises several questions, but most prominently, what is different about someone paying for a faster feed from such an event, to someone paying for co-location – or even building microwave towers to get data quicker?
In December it was reported by The Times that the Bank of England’s audio feed from its monetary policy press conferences had been “hacked” by a media company promoting “first” access to comments at central bank press conferences. The Bank of England issued a statement that said the audio feed was “misused by a third party supplier to the Bank since earlier this year to supply services to other external clients.” The statement added, “This wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further.”
The company concerned has been named in the media as Statisma, a UK group whose website does indeed promote its ability to deliver “important live events” from around the world “first”. The company also has a statement on its website noting it does not release any information without it first being made available to the public.
The feed in question is an audio feed, probably on a delay of a second or two from when the comments are made, whereas the primary feed that most people use is a video feed, which can often include a delay of almost 10 seconds. So the big question is – and this is where a fissure in regulatory standards is being highlighted – was there anything naughty going on?
At face value you’d have to say no – after all the audio feed existed, the company had just found a way to deliver data quicker – but there is the issue of the Old lady’s claim that the feed had been “misused”. The audio feed was clearly a back up and not expected to be a primary source of information, it seems that the company most likely responsible for maintaining that feed saw a commercial opportunity and took it. Sources familiar with the matter tell me the Bank of England is most concerned about the underhand nature of what happened – it clearly wasn’t aware of what was going on, but surely this is naïve in the modern world where people build microwave towers at huge expense to get data a nanosecond quicker?
Owners of microwave towers argue they spend all that money out of the goodness of their heart so they can make better prices to the market, which we all know is nonsense, it’s really about being able to cancel quicker and hit prices before the maker even knows they’re stale – the microwave towers are really there to protect the high frequency market maker from their peers. This story has been bought by some US regulators, however, observe CFTC commissioner Brian Quintenz’ statement last year that, “The goal of financial markets is not to protect or shelter the less informed” and “Those that invent, and invest in, faster information transmission technologies to capitalise on market dislocations reap the profits of their advantage. That process enhances market efficiency…”
It would be interesting to hear Mr Quintenz’ view on people accessing a press conference ahead of their peers – judging by the above statement he would have no problem, whereas the Bank of England (and according to the Financial Times other central banks have conducted enquiries into how their information is disseminated) does.
The fact is that the more we embrace technology the more speed will play a role in markets and people will look for any edge they can find – the regulators have to make up their mind just what is, and what is not, acceptable and exactly how much we want to embrace it.
In its statement on the issue, the Old Lady notes, “The Bank operates the highest standards of information security around the release of the market sensitive decisions of its policy committees…”, which should raise an ironic eyebrow or two
This nothing new, however, it needs to be stressed. Traders have always looked for this edge – I have written before about paid access to private surveys that allow certain traders to gain the information ahead of release, for example – it has been that way for decades (if you really want me to go old school I can remember having the job of sitting in front of a ticker tape and having to shout out all the news that came over it because screens were in their infancy!), so should we be bothered by this latest instance? It’s not as though the company concerned wasn’t public with its service – anyone who wanted to pay for it could do so, is this any different than people paying for co-location?
Some of my acquaintances have been quick to dismiss this as another dodgy trick by the high frequency community to rip off the markets, but I think that is wrong. Certainly I am not of the school that thinks HFTs make the market better, but neither are they wrong in everything they do. I am afraid in this instance the fault lies almost exclusively at the feet of the Bank of England which clearly didn’t take its information security seriously enough, or at least did not possess the depth of knowledge of modern communications necessary to prevent allegedly unscrupulous use of an innocent feed.
In its statement on the issue, the Old Lady notes, “The Bank operates the highest standards of information security around the release of the market sensitive decisions of its policy committees…”, which should raise an ironic eyebrow or two, if it did this incident would not have happened (or, I suppose taking an early feed would have been viewed as acceptable as per the aforementioned Quintenz).
The Bank of England reported itself to the UK regulator in order for the FCA to conduct an investigation into the matter, which should be pretty quick. Did the contract between the Old Lady and the service provider include a specific clause stating that the feed was not to be used for commercial purposes? If it did then the company concerned is banged to rights (technical legal term), if it did not then it merely exercised its commercial prerogative and the Bank is trying to close the stable door after it had itself let the horse bolt.
In the meantime, however, there might be something else for the Bank of England to consider – why have the audio feed as a back up at all; why not make it the primary feed? Information transmission is everything in markets so if there is a quicker way to get information to traders then why not use it? I am no expert on audio visual latency but it strikes me that sending pictures all over the world would inevitably involve higher cumulative latency than it would an audio feed, which disadvantages non-UK based traders, so that would be fairer as well.
There are those that consider Bank of England governor Mark Carney a handsome man; even so, I am wondering why we need to see him deliver his post-MPC comments rather than just hear them? If nothing else this incident highlights how central banks, as much as any other market participant, really need to stay on top of technology advances and their use in markets.