How U.K. Election Rules Allowed the ‘Brexit Short’

(Bloomberg Opinion) -- A Bloomberg investigation published last week revealed that hedge funds spent significant sums purchasing private exit polling data on the Brexit referendum in 2016; and then used the information to short the pound, which experienced the largest drop on record. At least one pollster sold the same results to a private client that it later gave for free to Sky News to be aired after polling stations closed. Cue the outrage, including from U.K. lawmakers.

Some might find the behavior unsavory, but it was almost certainly lawful. The broadcasting regulator, Ofcom, forbids broadcasters from reporting opinion polls on polling day; and it is a criminal offense to publish exit polls, which are based on information given by voters as to how they have cast their vote, before polls close on voting day. 

“Publication” is defined as making information available to the public at large or “any section” of it. What is meant by a “section of” the public has not been tested in the courts. However, it is difficult to see how one corporate client — as opposed, for example, to a section of industry such as members of a trading organization — could be considered a “section” of the public. From that reading, polling companies are free to provide exit polls to such clients on polling day itself, which is just what they did on the day of the Brexit referendum.

The restrictions are in place because, at least in the U.K., the reporting of opinion polls is deemed to have an effect on voting in elections. It might depress the turnout of the supposedly winning party, through causing complacency; or it might increase that party’s turnout and support, through encouraging the perception that it really will win. It is impossible to know: The effect can only be discerned through analyzing opinion polling trends themselves.

The prohibition on publishing exit poll results is perhaps linked to the historical protection of the secrecy of the ballot. Exit polls rely not on opinions given as to voting intentions but on declarations by voters as to how they have actual voted. Secret ballots were introduced in Britain after a long history of voters being unfairly influenced by the publicly declared votes of others, as readers of George Elliot’s novel “Middlemarch” or Charles Dickens’s “Pickwick Papers” will recall; and it is considered wrong in principle (at least on a large scale) for voters to be influenced by the votes, as opposed to opinions, of their peers. 

Americans might consider this paternalistic. The First Amendment to the U.S. Constitution prevents Congress or the states from restricting broadcasters in this way. It is not the only area of difference: England and Scotland have powerful laws significantly restricting comment on ongoing trials; that would be inconceivable in the United States. Yet the argument is that restrictions on broadcasting campaign messages on the day of polling allow voters to focus on their decision without added noise.

Some will agree with Bloomberg’s Matt Levine that the restriction is perverse. Ordinary voters are unable to see the result while rich corporates are not. Why not reverse the restriction, allowing publication but preventing the purchase of such information?

Perhaps, but it is hard to see how that case will hold up in Britain. Exit polls look a lot like other kinds of lawfully purchased and traded on research; they are, after all, still only a prediction. Does this allow corporate clients to buy information that they can use to their trading advantage? Yes, if they are willing to gamble on its accuracy. But whether they do so is of no importance to the regulation of elections, which is the focus of the current restrictions on publication. Those U.K. lawmakers calling for inquiries and investigations are unlikely to find much satisfaction.

To contact the editor responsible for this story: Therese Raphael at traphael4@bloomberg.net

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