Yet another scandal unfolds at the Bank of England

Sometimes the news just leaps at you off the page and overnight this has happened concerning a warning I have made in the past about the Bank of England. So let us get straight to the Financial Times on the subject.

The Bank of England has referred to the UK’s financial watchdog the revelation that an audio feed of its market-sensitive press conferences was supplied to high-speed traders before the events were officially broadcast.

This is disgraceful on two counts. Firstly in an era of computer driven algorithm driven trading an edge like this is quite something for them as we mull exactly who was more equal than others? To coin a phrase. Next is the fact that this happened at the ECB several years ago and after such a warning someone should have been dispatched to make sure that it could not happen at the Old Lady. So we can add laziness to the incompetence.

As ever the PR machine is in full flow and has opened its batting with an attempt to put the blame elsewhere.

Following a rapid internal investigation, the central bank confirmed what it called a “wholly unacceptable” use of its back-up audio feed of press conferences by a third party supplier, which it has refused to name citing legal reasons.  The BoE was responding to an article in The Times, which reported that hedge funds had been eavesdropping on press conferences a few seconds before others heard the words of governor Mark Carney.

The spinning starts with the report of a “rapid investigation” which surely is in fact a really tardy one as the ECB scandal was several years ago now! Also did no-one wonder why this was set-up?

The audio feed was installed only to act as a back-up in case the video feed failed, but the BoE said it had recently discovered — “following concerns raised with the bank” — that the feed had been misused by the supplier since earlier this year.  “This wholly unacceptable use of the audio feed was without the bank’s knowledge or consent, and is being investigated further,” the BoE said in a statement. Those who received the audio feed had a five to eight-second advantage over people who watched the main video feed, the Times reported.

Have you noted how a “few seconds” seems to have suddenly morphed into a ” five to eight-second advantage”? Also the attempt to shift blame to the supplier is really rather weak. Did nobody wonder why funds were willing to pay the amounts suggested below?

Clients were charged between £2,500 and £5,000 per press conference for access to the audio feed, the newspaper reported, adding that high-speed audio services were also offered for similar events at the European Central Bank, the US Federal Reserve and the Bank of Canada.

Even the Financial Times which like more than a few parts of the media has lauded Governor Carney as a “rock star” central banker have to admit this.

However, this is embarrassing for the BoE. Comments made by Mr Carney and other senior BoE officials at the press conferences that follow meetings of the monetary policy committee and financial stability committee often move sterling and gilt prices: having a start of a few seconds would allow traders to pre-empt the rest of the market.

As to any resolution well in true Yes Prime Minister style the ball is licked into the long grass.

On Thursday, the BoE said it had referred the matter to the Financial Conduct Authority to investigate whether rules had been broken and trading had occurred on the basis of early information from the feed.

How about yes and yes as the answers to those questions?! Indeed in the replies IronKnee seems to understand the game.

You don’t understand the system, it’s the City

We have a long investigation, then take a few traders to Court (great if they are from the EU27 or have excess melanin) because the Executives couldn’t possible know what their staff were doing and can’t be held responsible.

Indeed the higher up you are the less responsible you are for anything. Yet in other areas…..

#ECJ : An airline is liable for the harm caused by a spilt cup of hot coffee #nikiluftfahrt

Let me now link this back to my theme and what I consider to be an even more serious issue so let us step back in time to August 2nd 2018 and I have added some emphasis.

 Actually one way or another the decision has already been made as the Monetary Policy Committee voted last night. This was a rather unwise change made by Governor Carney as it raises the risk of leaks or what is called the early wire as the official announcement is not made until midday. As you can see from the chart below the BBC seems to think that the decision is a done deal or knows it is ( h/t @Old_Grumpy_Dave ).

Retail Sales

We can continue the Bank of England theme as we note that last time around 2 members voted for an interest-rate cut and would likely be further confirmed by today’s Retail Sales release.

The quantity bought in November 2019 fell by 0.6% when compared with the previous month, with only household goods stores reporting growth…….In the three months to November 2019, the quantity bought in retail sales decreased by 0.4% when compared with the previous three months; this is the first decline since April 2018.

The state of play is summed up by this bit.

There has been a slowdown in the rate of growth in recent months, with October 2019 increasing at just 0.1%. November 2019 saw a decline of 0.4%; this is the first decline since April 2018, which reported a fall of 0.2%.

Indeed the annual comparison has weakened too.

Year-on-year growth in the quantity bought increased by 1.0% in November 2019; this is the lowest growth since October 2017, owing to a decline of 1.1% in non-food stores.

So there does seem to be something going on although there is a catch as whilst the official view is that this is covered by the seasonal adjustment I am much more doubtful.

In 2019, the official Black Friday was on 29 November and outside our November reporting period, which covers four weeks from 27 October to 23 November; our seasonally adjusted estimates account for this shift in timing.

Comment

As the term of Bank of England Governor Mark Carney comes to an end I am reminded of the Yes Prime Minister view that an intelligent and honest Governor would be an “innovation”. Added to that has been the accusations that he has played politics in the Brexit debate which was frankly hardly a surprise for a man accused of playing politics when he was Governor of the Bank of Canada. Sadly such issues got covered in a smokescreen provided by a fawning media who presumably are hoping today that people have short memories.

However there are 2 deeper issues which are as follows. The Bank of England has proved to be somewhat scandal ridden as we note the Li(e)bor and various other scandals. Next is the fact that this matters ever more because central bankers have intervened in so many new areas. Indeed that has been highlighted this morning by the Riksbank in Sweden which ran negative interest-rates in a boom and now responds to rising unemployment with this.

Therefore, in line with the assessment in October, the Executive Board has decided to raise the repo rate from –0.25 per cent to zero per cent. The forecast for the repo rate is unchanged, and the repo rate is expected to remain at zero per cent in the coming years.

Yet they mostly escape criticism for this shambles. Perhaps if Governor Carney could stick to the day job that might help.