Officials at the Bank of England (BoE) recently responded to an article in the Times revealing that a third-party supplier sold an audio backup of its online news conferences to high speed traders – giving them a 5 to 8 second advantage over their rivals – as “wholly unacceptable”.
Facts of the Case
According to the Times, an unnamed third-party vendor to the BoE sold access to an audio feed backup of the central bank’s video news conferences to a number of hedge funds and high speed traders. In a statement, a representative of the BoE said, “This wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further.”
Because audio files can be compressed and delivered faster than video files, clients of this audio feed could gain a 5 to 8 second advantage over the general public who received access to the news conferences via video. The video feed is the main vehicle for broadcasting the BoE’s press conferences, and is handled by data and news company Bloomberg.
Besides the sale of the BoE’s backup audio feed, the Times also reported that an unnamed company received advance copies of speeches and other market-moving publications while it was linked to an unnamed, accredited news organization. This news organization was reportedly affiliated with the third-party vendor who sold the backup audio feed.
The BoE has referred the misuse of the backup audio feed to the Financial Conduct Authority (FCA), which is expected to start investigating the matter. The FCA is likely to focus on whether the information accessed early constituted inside information and then whether the managers of the investment firms involved had acted appropriately.
In the past, hedge funds have actively sought out information advantages to enable them to generate consistent trading profits. However, in some cases this information has constituted illegal MNPI or insider information.
The current BoE case, however, is interesting as it is unclear whether the audio files were sent before the video files were released to the public, and whether the hedge funds who purchased and received this data did anything wrong. They might merely have been leveraging a legitimate technology advantage associated with audio content. In fact, since September this year the European Central Bank (ECB) has been freely offering a low latency audio feed to “address exactly the issues” highlighted by the recent BoE case.
This is not to say that the vendor who sold the backup audio feed is not guilty of breaching the contract it had with the BoE for providing its audio backup. It is also not clear whether the news agency that provided market moving speeches and other publications in advance of their embargo is not guilty of disseminating inside information.
In addition to the legal ramifications of this investigation, this case has become a public relations black eye for the BoE as it calls into question the efficacy of the central bank’s information security policies and procedures. In fact, some have called for the BoE’s chief of information security to resign as a result. The key for the BoE will be whether it can convince the public that it has taken appropriate steps to regain public credibility on this issue.