WASHINGTON (Reuters) - The Federal Reserve launched an investigation on Wednesday into one of the U.S. central bank’s worst security lapses in years, but said it appeared that the early release of market-sensitive minutes of a policy meeting had been “entirely accidental.”
Minutes of Fed meetings can shed vital light on the future path of U.S. monetary policy and frequently impact financial markets worldwide. As such, they are guarded by elaborate security measures.
“At this time we do not know whether there was any trading related to inadvertent early distribution of the minutes,” a Fed spokesman said. “We will be working with market regulators, the SEC and CFTC, to ensure they have the information they need to evaluate the incident.”
Securities and Exchange Commission spokesman John Nester confirmed the SEC had been contacted by the Fed, but declined further comment. The Commodity Futures Trading Commission did not respond to an information request.
The Fed discovered early on Wednesday morning that more than 100 people - primarily congressional staffers and employees of trade associations - had received the minutes of its March 19-20 policy meeting shortly after 2 p.m. (5:00 p.m. British time) on Tuesday.
These people normally would have been sent the minutes after their scheduled public release time of 2 p.m. on Wednesday. After discovering the breach, the Fed decided to publish the minutes broadly several hours ahead of schedule.
“The (Fed) Board’s Inspector General has been asked to conduct an initial review of the incident. But every indication at this time is that the early release of the minutes was entirely accidental,” the Fed spokesman said.
Long-time watchers of the U.S. central bank could not recall another incident when such a highly sensitive document was released a day early.
The minutes detail discussions between the 19 members of the policy-setting committee over each of the Fed’s regular two-day meetings, held eight times a year, plus Fed staff forecasts for the U.S. economic outlook.
Although they do not name individual officials’ policy preferences, the minutes give a pretty clear sense of where the consensus at the Fed lies around key issues, such as if and when it plans to taper monthly Fed bond purchases.
Such insight into possible future Fed actions can move the prices of stocks, bonds and currencies, and the release of the minutes three weeks after each policy meeting has become a key trading event in the financial markets calendar.
Indeed, the latest set of minutes, which suggested policymakers were nearing a decision on tapering their bond purchases, pushed prices for U.S. government debt lower and helped lift the dollar to a four-year high against the yen after the minutes were released broadly on Wednesday morning.
The minutes of the prior two meetings had an even bigger impact. Minutes released in late February led to the biggest drop in U.S. stocks in three months, while minutes in January sparked a selloff in the Treasury market that drove benchmark yields to their highest level since May 2012.
Premature disclosures of sensitive U.S. government data is unusual but not unprecedented. Last August, the U.S. Labor Department accidentally posted weekly jobless claims data to its website the afternoon before the report was due to be released.
Lawyers and former federal prosecutors said that any insider trading case based on the early release of the minutes would hinge on whether the recipient of the information specifically knew the details were provided on a confidential basis.
“Insider trading requires not only that the information be material and non-public but that you acquire it either through a breach of fiduciary duty or somehow you misappropriate it from the source,” said John Coffee, a professor at Columbia law school focused on securities regulation and white-collar crime.
Additional reporting by Jason Lange, Aruna Viswanatha, Sarah N. Lynch and Emily Stephenson; Editing by Tim Ahmann and Andrea Ricci