Mark Carney, Governor of the Bank of England speaks at a Bank of England Financial Stability Report Press Conference, in London, Monday, Dec. 16, 2019. (AP Photo/Kirsty Wigglesworth,pool)

Bank Of England Audio Feed 'misused' To Give Traders An Edge

December 19, 2019 - 4:00 am

LONDON (AP) — U.K. authorities began investigating Thursday into how some hedge funds had access to market-sensitive news conferences of the Bank of England via an audio system a few seconds earlier than anyone else, an advantage they could have used to make big profits.

Following a report late Wednesday from The Times newspaper, the Bank of England said an investigation was underway into what it termed the “wholly unacceptable use of the audio feed."

The bank referred the case to the financial regulator, the Financial Conduct Authority, which is also looking at the incident amid concerns of insider trading.

According to The Times, market participants who subscribed to a market news service offering an audio feed of the Bank of England Governor Mark Carney's quarterly press conferences had a five- to eight-second head start over competitors. That means that anyone with access to the audio feed could have had an advantage over those who were watching via the official broadcast provided by Bloomberg News.

Having access to comments from Carney seconds before the official broadcast feed is seen by other investors could give a big advantage to traders who use powerful computer programs.

So-called high-frequency trading can execute a huge number of transactions in a fraction of a second, meaning that early access to market-moving news can yield big rewards. In high-frequency trading, large organisations such as investment banks and hedge funds use artificial intelligence and automated trading platforms to track markets and execute trades.

If Carney, for example, indicates that the bank is ready to raise interest rates, traders could see that as a potential positive for the pound and start buying the currency before other investor

Carney and others on the bank's rate-setting panel hold quarterly press conferences to discuss the outlook for U.K. interest rates. Those press conferences often lead to big moves in financial markets as traders react to changes to the outlook for interest rates. That's been especially the case over the past few years of Brexit-related uncertainty.

“What Mark Carney is talking about is the outlook for interest rates, the outlook for inflation," Sue Noffke, U.K. equities fund manager at Schroders, told BBC Radio. “Those outlook comments can determine interest rates, the value of the pound, and a lot of financial instruments.”

In a statement issued after The Times' report, the central bank said it has identified that an audio feed of some of its press conferences - installed only to act as a back-up in case the video feed failed - "has been misused by a third party supplier to the Bank since earlier this year to supply services to other external clients."

It said this “wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further."

The unnamed third party supplier's access has been disabled and it will no longer play any part in any of the bank’s future press conferences.

The Bank of England insisted it operates “the highest standards of information security around the release of the market sensitive decisions of its policy committees” and that the issue identified "related only to the broadcast of press conferences that follow such statements."

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