Having questioned whether Tim Geithner leaked every Fed announcement to the banks during his tenure (but did not mention it in his memoirs) and shown that traders acted on information at faster than the speed of light (and thus were indeed aware of leaked decisions ahead of time), it should be no surprise that a new research paper has found “robust evidence†that some traders have been getting early news of U.S. Federal Reserve rate announcements and then trading on it during the Fed’s media lockup. The trading anomalies that Bernile and his colleagues spotted begin about 15 minutes before the news embargo is lifted and continue at a fairly even pace and are “statistically significant and in the direction of the subsequent policy surprise.”
As Bloomberg reports,
A research paper has found “robust evidence†that some traders have been getting early news of U.S. Federal Reserve rate announcements and then trading on it during the Fed’s media lockup.
The paper detects abnormally large price movements and imbalances in buy and sell orders that are “statistically significant and in the direction of the subsequent policy surprise.â€Â The moves occurred during the window between when Fed announcements are supplied to the news media and when they are permitted to be released to the public, the authors write.
“Back-of-the-envelope calculations indicate that the aggregate dollar profits … range between $14 [million] and $256 million across the four markets that we examine†between 1997 and 2013, the authors write.
And -Â shown that traders acted on information at faster than the speed of light
“What is really interesting about our work is that it shows the problem is not a problem of milliseconds,†Bernile.
In other words, this was not just HFT front-running but actual ‘information’ leakage… from whom we wonder?
Tim Geithner leaked every Fed announcement to the banks during his tenure
