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.
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