Security around the Bank of England’s decision making process is once again in the spotlight after sterling jumped 15 seconds before the latest monetary policy announcement was made. Late last year it was revealed that a company was using an audio feed from the Bank’s press conferences post announcement to give traders an advantage over those receiving the conference by the main, video, feed and today’s move will increase scrutiny of the central bank’s systems.
Just 30 seconds before the announcement that rates were unchanged, Cable was trading quietly around 1.3023, but 15 seconds ahead of time the market jumped to 1.3090 before correcting and then jumping again, this time to the 1.3108 level when the news was actually announced. Another small correction followed and the pair has broadly traded sideways since.
Dealers spoken to refer to a large buy order on CME at the time of the leap, with one saying it was for “over £100 million”, although there is no clear sentiment as to why the move happened. Several sources at major FX dealers say that their institution has referred the matter to the UK’s Financial Conduct Authority – as indeed has the Bank of England, the second time it has had to refer itself in a few months.
The most popular theory is for a leak of the information, although some traders believe there may be another glitch in the system that allows some traders to get the news earlier. It is understood that the Bank’s rate decisions are transmitted on its website and through channels to major news organisations, however it is hard to believe that transmission times could be improved by 15 seconds or more, especially given how there is only a 12 second delay on the video feed from the Bank.
If there is a leak or someone has gained access to the Bank’s website, this will ramp up the pressure on the Old Lady to change how it releases results, however it should be noted that this is not the first time that such an event has occurred. In 2015 and 2016 there were similar moves ahead of Reserve Bank of Australia rate decisions, however the the Australian regulator ASIC conducted an investigation and concluded there was no leak. At the time there was speculation that a high-speed trading firm was seeking to take advantage of thin market conditions ahead of such an announcement to aggressively buy and then sell – sometimes before the news had even broken. “Such a thing could work,” one e-trading source says. “It’s a brave call, but if you can get the market up enough before the news breaks you have a decent chance of it not costing you money if you’re quick to get out.”
One source points to the small dip just a second or two ahead of the announcement as evidence this may have happened, noting, “The big buy order that everyone saw may not have been filled, the trader concerned may have been 20 long and wanted to spoof the market higher – it’s hard to tell. If they did that, then they could easily have sold the position out in the second or two before the announcement when other traders who thought they were missing out tried to buy.”
Another e-trading source believes that there could be a perfectly innocent – and dumb – reason for the move. “It could just be that someone has tried to buy an amount of sterling at the wrong time, not knowing that the MPC decision was imminent,” the trader speculates. “There are an awful lot of people running e-trading businesses out there who only look at data and not at the clock or the economic calendar – they get the order and they execute it.
“It’s why we get flash moves after the New York close,” the trader continues. “Some people are too dumb to realise they are trying to trade at the wrong time.”
If indeed this was a player trying to execute a large ticket in the 15 seconds before the MPC decision, not only would their TCA report make for interesting reading – and hopefully raise flags within the organisation – but it would suggest it is not a firm that has signed up to the FX Global Code which stipulates against disruptive trading – and the 30 second window before major economic and rate announcements is certainly that.
Attention will now swing to the FCA’s report and while there is a still a tremendous amount of data to trawl through it has the advantage of that data being fresh. It will be exhaustive, but if the UK regulator really wants to get to the bottom of the issue then it can start by quizzing every buyer on CME and Refinitv Matching during that window, and then work back through the chain, hopefully with the help of modern timestamps to the source of the issue.
It is hard to state with any confidence what happened earlier today, however it is suspicious that this type of activity has been seen before – indeed it was even reported prior to 2015 ahead of some US economic announcements. It is hard not to be more optimistic, however, that with the benefit of more data and modern data analytical techniques, the regulator can get close to the cause of this spike.