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UPDATE 2-Fed following up on report of unusual trading around FOMC statement
September 24, 2013 / 7:20 PM / 4 years ago

UPDATE 2-Fed following up on report of unusual trading around FOMC statement

By Alister Bull

WASHINGTON, Sept 24 (Reuters) - The U.S. Federal Reserve said on Tuesday it was following up with news organizations over a report of unusual trading around the release of its monetary policy statement last week.

The report by CNBC television cited a wave of trading activity in Chicago at 2 p.m. ET (1800 GMT) on Wednesday that appeared milliseconds ahead of other trades based on the Fed’s surprise announcement that it was not tapering its bond buying.

The policy-setting Federal Open Market Committee’s decision not to start scaling back purchases from an $85 billion monthly pace spurred a broad rally in financial markets, including gold.

CNBC credited Chicago research firm Nanex for spotting significant activity in Comex gold futures, traded in Chicago, which it calculated was five to seven milliseconds ahead of a subsequent spike in gold transactions in New York.

Nanex said traders in New York would normally have had about a five-millisecond advantage over traders in Chicago on news coming from Washington, because of their proximity to the nation’s capital and the time it takes for the data to be transmitted.

The company’s chief executive, Eric Hunsader, said there were $800 million worth of futures contracts traded in Chicago in the first seven milliseconds after 2 p.m. ET on Wednesday, mostly in financial and precious metals futures contracts.

“This is unusual because it takes information seven milliseconds to go from Washington to Chicago ... meaning that the news must have been already in Chicago,” he said. “This raised my eyebrows.”

The Fed hands out the FOMC statement to news organizations shortly before the official release time but publication is strictly prohibited until 2:00 p.m.

A Fed spokesman said the central bank would follow up with news organizations to ensure they properly understood its procedures for embargoes.

“As is generally the case with other releases of market-sensitive information by government agencies, news organizations receiving embargoed information from the Federal Reserve agree in writing to make no public use of the information until the time set for its release,” a Fed spokesman said.

The U.S. Commodity Futures Trading Commission separately confirmed that it was also looking into the matter.

“It’s standard operating procedure for the CFTC surveillance staff to look at anomalous market moves like this, and we are doing so in this instance,” said CFTC Commissioner Bart Chilton.

The price of gold rose $53 to close at $1,362 an ounce, a gain of 4 percent. The broad-based S&P 500 stock index advanced 1.22 percent to a record close of 1,725.52.

Investors had expected the Fed would trim bond buying by $10 billion, beginning the process of ending an unprecedented period of ultra-easy monetary policy.

A spokeswoman for Reuters confirmed the company had been contacted by the Fed. “We are confident that we have complied fully with the terms of the embargo that the Fed imposes,” said Barb Burg, global head of communications at Reuters, which is part of Thomson Reuters.

Bloomberg declined to comment. Officials at Deutsche Boerse Group’s MNI did not immediately respond to a request for comment. Paula Keve, a spokeswoman for Dow Jones, said the firm “will continue to work with the Fed cooperatively to report in full accordance with their desires.”

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