A bird flies past the Bank of England in the City of London on Dec. 12, 2017.Clodagh Kilcoyne/Reuters
A rogue supplier has been misusing audio feeds from Bank of England news conferences this year, the central bank says, giving traders access to potentially market-moving information seconds before rivals.
In response to a report in The Times of London, United Kingdom’s central bank said a third-party supplier had misused a backup audio feed of some of its news conferences without its consent.
Briefings by Bank of England (BoE) Governor Mark Carney and other central bank officials often move the prices of financial assets such as currencies and government bonds, and early access to their comments could allow traders to make millions.
The supplier sent the feed to high-speed traders who could have had a five- to eight-second head start because sound can be compressed and transmitted faster than video, the newspaper report said.
“We have recently identified that an audio feed of certain of the Bank press conferences … has been misused by a third-party supplier to the Bank since earlier this year to supply services to other external clients,” the BoE said.
“This wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further,” it said in a statement, without naming the supplier.
The BoE has referred the misuse of the feed to the Financial Conduct Authority (FCA) regulator, which is expected to start an initial scoping exercise, which can take months, before deciding whether to launch any investigation into potential offences such as market abuse.
Hedge funds have long sought to steal a march on rivals by getting market-moving data first, and the pressure to do so has grown in recent years as many funds have struggled to outperform market indexes, reducing the fees they can charge.
Funds now scour the market for sets of “alternative data” that can give them an edge, which in turn has spawned an industry of data suppliers and service providers who charge heavily for their products and subscriptions.
Sensitive information can be fed into complex computer programs capable of executing large volumes of financial trades in nanoseconds, making a head start of even five seconds an age for sophisticated investors.
A number of suppliers also offer high-speed audio feeds for news conferences by the European Central Bank (ECB), the U.S. Federal Reserve and the Bank of Canada.
“The Bank of Canada has a long-standing relationship with a trusted Canadian supplier … .” a BoC spokesperson said in an e-mail. “The feed is secure and exclusive to the Bank, and we maintain a strict policy of not allowing access to this feed by any other individual or firm.”
The spokesman said the Fed is taking a look at its broadcast and streaming practices in light of the Bank of England breach, although it doesn’t have any specific concerns about possible exposure to a similar breach.
In September, the ECB added a public audio feed for its news conferences on its website, in addition to its usual video webcast. The central bank said this was to allow all to follow the briefing in “almost real time”.
The ECB had become concerned that unaffiliated vendors were selling an unauthorized audio feed of its news conferences to market participants, though it was not clear how the suppliers gained access to the sound.
There is a lag of about 30 seconds between the ECB’s new low-latency audio feed and its video webcast.
The Bank of England didn’t identify the supplier involved. Statisma, a British-based firm that streams feeds of live events from central banks and government bodies, posted the following statement on its website Thursday:
“Statisma is a technology company specializing in the delivery of publicly available audio content. We DO NOT carry embargoed information and we DO NOT release information without it first being made available to the public. It is impossible to ‘hack’ or ‘eavesdrop’ any live public event or press conference. Any such suggestion is dismissed out of hand.“
The Bank of Canada spokesperson said the bank has not had any dealings with Statisma.
The U.S. Federal Reserve only provides a combined video and audio feed. A Fed spokesman said the central bank streams its media conferences live on the internet and provides a video feed to a broadcast distribution service that is widely used.
“We only use systems that are open for broad distribution,” the spokesman said, adding that the Fed would be reviewing its existing arrangements in light of events.
The BoE audio feed was intended as a fallback option if its official video feed of its news conferences failed, according to The Times report.
Mr. Carney is due to leave his BoE post within weeks and his replacement is expected to be announced soon. In its latest policy announcement, the central bank left interest rates unchanged on Thursday.
The bank said it had blocked the supplier’s access immediately when The Times had informed it of the misuse. The bank said the supplier had not distributed feeds from its most recent news conference and will not be involved in any conferences in the future.
Zoe Osborne, a partner at law firm Steptoe in London, said any culpability for wrongdoing rested in part on what restrictions were in place between the BoE and the third-party supplier, whether it had complied and what traders were told and knew about the perceived time advantages of the audio feeds.
Rohan Massey, a partner at law firm Ropes & Gray, told Reuters there could be widespread legal culpability, stretching from traders who misused the feed right up to the Bank of England, depending on the full facts of the case.
“You would have thought that as part of Bank of England standard operations, these agreements would provide adequate protections against unauthorized use of the data,” he said.
With files from Globe and Mail staff