Hedge funds have been eavesdropping on the Bank of England’s press conferences before they are officially broadcast after its internal systems were hijacked.
Following inquiries by The Times the Bank has discovered that one of its suppliers has been sending an audio feed of its press conferences to high-speed traders who hope to profit by acting on the governor’s comments before the rest of the world.
Hearing what Mark Carney, the governor, and other senior Bank officials say mere seconds before others can be highly lucrative for speed traders, who make fortunes from early access to information. Mr Carney’s comments at Bank press conferences frequently move the value of the pound and gilt markets.
High-frequency trading is a prominent hedge fund strategy. A number of companies have installed microwave transmitters on towers across the country to get market information split seconds before official prices move.
It has also become common in sports betting, with “watchers” sent to events around the world, such as tennis matches, so they can transmit what is happening before online betting apps are able to change their odds.
High-frequency trading is not illegal but has been compared to insider dealing because it is a way of trading on information that others do not have. Until now there has never been any suggestion that outsiders were hacking into central bank systems.
The Bank said it had discovered that a back-up “audio feed of certain press conferences has been misused by a third-party supplier since earlier this year to supply services to other external clients”.
The third-party supplier is understood to be connected to a market news service that promises clients will gain an edge over rival traders in a field where getting information microseconds before others can generate huge profits. The Bank’s official video feed of press conferences is managed by Bloomberg. However, the Bank employed contractors to install a separate back-up audio feed several years ago in case the video feed went down. It was never intended to be used by an outsider unless the video failed.
A supplier has hacked into the audio feed since at least the start of this year to provide the service to one of its other companies. That service is then sold on to high-speed companies, documents show.
The Bank said that it had “disabled the third-party supplier’s access”. A spokesman added: “This wholly unacceptable use of the audio feed was without the Bank’s knowledge or consent, and is being investigated further”. The Financial Conduct Authority, the City regulator, said that it was looking into it.
Audio is easier to compress and transmit than video, giving traders who buy the feed a five to eight-second head start on the rest of the market.
The market news service selling these feeds charges between £2,500 and £5,000 a press conference for each client in addition to a subscription fee. High-speed audio services are also offered for press conferences at the European Central Bank, the US Federal Reserve and the Bank of Canada.
The revelation that the Bank of England’s systems have been abused to give one set of traders an advantage over another will be an embarrassment because one of its roles is to support fair and efficient markets.
Mr Carney, 54, is due to leave the Bank on January 31 and will become the United Nations special envoy for climate action and finance on a token $1 a year for the part-time role. His successor could be announced as soon as tomorrow.
A spokesman said: “The Bank operates the highest standards of information security around the release of the market-sensitive decisions of its policy committees. The issue identified related only to the broadcast of press conferences that follow such statements.”
High-frequency trading took off after the financial crisis as hedge funds and investment banks searched for low-risk returns. The fragmentation of markets created an opportunity. Companies such as Jump Trading, Optiver, Getco and Flow Traders have been installing microwave dishes across Britain.