Bank of England Audio Was Leaked, Giving Some Traders an Edge

LONDON — The Bank of England said Thursday that an audio feed from its news conferences had been released to some investors before it had been made public, giving them a leg up on the rest of the market.

The central bank said it was investigating how a third-party supplier had gotten early access to policymakers’ remarks. In the world of high-speed trading, just a few seconds’ lead time can offer some investors a trading advantage.

The Financial Conduct Authority, which regulates Britain’s financial markets, also said it was investigating the leak. In an email, a spokeswoman declined to comment on whether the authority was aware of any trading based on the leaked information.

After queries from The Times of London, the Bank of England said the audio feed of its news conferences, maintained as a backup in case the video feed fails, had been “misused by a third-party supplier to the bank since earlier this year to supply services to other external clients.”

The audio feed provided traders a five- to eight-second advantage over the video feed, The Times reported.

Having a feed that can be watched on platforms like YouTube is meant to make the bank’s decision-making as transparent as possible.

Comments from the Bank of England’s news conferences, held roughly quarterly, are closely monitored for indications about the bank’s thinking on interest rates and the state of the economy. But Mark Carney, the bank’s governor since 2013, has aimed to provide forward guidance — that is, some indication of how the bank will manage monetary policy in the future. This approach has limited the potential for market-moving surprises from a shift in direction.

Central bank announcements can drive large swings in stock, bond and currency markets, opening up opportunities for nimble traders, such as hedge funds, to rack up profits by correctly predicting the direction of trading faster than the rest of the pack.

But unlike other kinds of market-moving news — such as corporate earnings reports — that can be easily distilled into a few key numbers, communications from central banks are largely delivered in speeches and official text statements.

“Increasingly hedge funds are in the game of taking these qualitative data sets and turning them into quantitative trading signals,” said Stephen Hansen, a professor of economics at Imperial College Business School in London, who has studied the impact of monetary policy on financial markets.

Computational linguistics has advanced to the point that an eight-second head start would be more than enough time to digest an audio feed, extract relevant information, convert it into a trading signal and execute a trade based on that information, Mr. Hansen said.

“You could call eight seconds really a long time in this world,” Mr. Hansen said.

The European Central Bank in September started providing an audio feed with less of a delay to limit the ability of external companies to claim that they could get a jump on the widely available public feeds.

The Federal Reserve said Thursday that it sought to make its news conferences as widely available as possible and, to that end, streamed the events directly and through news organizations. A Fed spokesman added, however, that in light of the Bank of England report, the Federal Reserve would review its practices.

Bloomberg said that it was the manager of the Bank of England’s video feed and that it made it available to other news providers. The bank did not identify the supplier of the audio feed, but said that it had disabled the supplier’s access. “As a result, the third-party supplier did not have any access to the most recent press conference and will no longer play any part in any of the bank’s future press conferences,” it said in a statement.

“The bank operates the highest standards of information security around the release of the market sensitive decisions of its policy committees,” the statement added. “The issue identified related only to the broadcast of press conferences that follow such statements.”

The disclosure came before the bank’s release of its periodic monetary policy statement on Thursday, in which it announced that it was keeping its benchmark interest rate unchanged at 0.75 percent.

The bank routinely puts reporters through tight precautions to prevent leaks that could prove valuable to traders. Before they are allowed to view policy announcements and forecasts ahead of their release, reporters are locked in a room with a security guard standing by and their cellphone connectivity is cut. They are not allowed to leave the room until after the embargo is lifted.

Premature access to information is a crucial concern to financial regulators around the world. In a 2015 case, prosecutors and regulators in the United States asserted that 32 traders and hackers had reaped more than $100 million in illegal proceeds from a scheme that provided a look at corporate news releases before they were made public.

Elian Peltier contributed reporting from London and Jeanna Smialek from Washington.

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