Unexplained Trading in Pound Last Month Wasn't a First
February 09 2020 - 5:29AM
Dow Jones News
By Anna Isaac and Caitlin Ostroff
A sharp move in the British pound last month in the minutes
ahead of a crucial central-bank decision wasn't a unique
occurrence, according to data reviewed by The Wall Street
Journal.
The U.K.'s Financial Conduct Authority has said it is looking
into unusual trading that occurred before a Bank of England policy
meeting on Jan. 30. Yet trading-volume data show there was also
unusually high activity in the pound the previous month, compared
with other announcements dating back to early 2017.
The spike in activity before the official announcement of
interest-rate policy comes at a time when the Bank of England has
been scrutinizing whether investors are gaining unfair access to
its decisions.
On Dec. 19, in the 10 seconds before the bank released its
decision to keep interest rates steady, trading volumes for
three-month futures tied to the pound against the dollar spiked to
more than 300 contracts changing hands in one second, from single
digits. At the same time, pound futures ticked as high as $1.3113
from $1.3090 10 seconds before the announcement, according to data
and academic analysis.
Following the central bank's decision to hold rates steady in
December, the pound rose 0.5% in the minutes after the
announcement. It later traded down 0.3% to $1.3029 by 4 p.m. London
time, according to FactSet.
At the same meeting, the bank had to shut down an audio feed of
market-sensitive information after it was used to offer some
traders a competitive time advantage. The feed had been misused by
a supplier, the BOE said, and it referred the matter to the
FCA.
The volume, price movement and period preceding the central
bank's announcement in December were similar to the activity noted
in January, according to Alex Kurov, a finance professor at West
Virginia University, as well as data from Genesis Financial
Technologies and Dow Jones Market Data.
"High volume and sizable price moves in the 10 to 15 seconds
before the last two announcements were unusual," said Prof. Kurov,
who teaches about financial markets and whose work includes
research into market reactions to macroeconomic data. "There's
usually very low volume before announcements."
While the unusual move in sterling could indicate that someone
had prior knowledge of the central bank's decision, it might also
have been a lucky trade, or based on other market information,
analysts said. Thin volumes in the futures market -- where
investors hold off on any bets ahead of the central bank's
announcement -- can amplify the impact of any trade as a potential
cause for the sharp rise of the pound.
An FCA spokesman on Friday declined to confirm or deny whether
the watchdog's probe into the Jan. 30 matter included other
instances of movement in the pound ahead of the release of
market-sensitive information. The BOE declined to comment on
whether it had observed any unusual market movements ahead of the
December interest-rate decision.
In the January instance, the spot rate for the pound, and
futures contracts tied to both the FTSE 100 equity benchmark and
sterling against the dollar, moved upward ahead of the central
bank's announcement.
Central banks, including the U.S. Federal Reserve, take a range
of precautions to prevent market-sensitive information from
leaking.
At the BOE, reporters are allowed to take one electronic device
into an underground room about two hours before the scheduled
release of the monetary-policy announcement. There, they are given
freshly printed documents with the central bank's decision. When
the release becomes public at noon London time, a staff person
flips a switch that turns on internet access inside the room and
the lock-in, as it is called, ends.
Unlike the Fed and the European Central Bank, which make their
decisions public on the day they are made, the Bank of England
reveals its decision a day later.
The U.S. Labor Department, which releases market-moving jobs and
inflation data, said recently it plans to end the practice of
giving reporters an early peek at data at a secure facility
controlled by the government. Under that system, it would allow the
reporters to publish articles at the same time that the data was
publicly disclosed.
The change was engineered in part to remove the potential
advantage that media organizations and their clients had over the
broader public.
Write to Anna Isaac at anna.isaac@wsj.com and Caitlin Ostroff at
caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
February 09, 2020 05:14 ET (10:14 GMT)
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