(Bloomberg Opinion) -- There are some very red faces at the Bank of England after it emerged that a backup audio feed of some of its monetary policy committee press conferences were used by a third-party service and sold to market participants. This means they would have had access to governor Mark Carney’s comments about eight seconds earlier than other listeners and viewers.
This isn’t about interest rate decisions, thankfully: They are announced half an hour before the press conference, where Carney answers journalist questions to put into context the thought process behind any policy change or alteration of economic forecasts. However, those responses theoretically do have the power to move the interest rate and currency markets.
To operate efficiently and fairly markets must be able to rely on the competency of central banks in making sure their communications are available universally at exactly the same time — in an era of high-speed trading, a few seconds here or there can make all the difference to traders. Hence this is extremely embarrassing for a body that’s meant to be the main guardian of regulatory compliance.
The European Central Bank had similar problems with the latency of its own news feeds, and now provides its own fast service directly on its website.
Fortunately for the orderly running of the markets, Carney is a different beast to the recently departed ECB president Mario Draghi. The BOE governor has rarely used these press conferences to send a monetary policy signal — preferring instead to flag notable about-turns in Mansion House speeches or TV interviews, and other events outside of U.K. market hours.
Indeed, it would be a much greater concern if this was still happening at the ECB, where every inflection of Draghi's press conferences were scoured over for inference on monetary policy — something his replacement Christine Lagarde is keen to avoid.
Nevertheless, who’s to say that Carney’s press conference words weren’t ever meaningful to the markets. It’s remarkable that no one at the BOE thought to correct its own news feed problem. Surely the lesson from the Libor rigging and foreign-exchange fixing scandals is that even a few basis points change in the currency or interest rate markets can be meaningful to making a profit. If legally obtainable information can give your traders a lead of up to eight seconds, then of course hedge funds and interest rate traders will want it. Eschewing such a service would put them at an effective disadvantage, such is the competitiveness of high-frequency trading.
This sideline in offering time advantages via swifter audio feeds needs to be put out of business globally. The Financial Conduct Authority, which falls under the BOE’s remit, will look into the matter, which could be uncomfortable for some firms if obvious advantages have been enacted on for instant windfall profits at the expense of the wider market.
Central Banks have tried to change the Gung-ho culture of trading since the financial crisis but the instinct to find an edge cannot be magicked away. Silly administrative mistakes can be.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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