Mystery: Did Someone Leak Fed Decision to Traders?

Chicago orders were placed milliseconds early
By Evann Gastaldo,  Newser Staff
Posted Sep 25, 2013 2:19 PM CDT
Mystery: Did Someone Leak Fed Decision to Traders?
In this Sept. 21, 2011 file photo, a trader at the CME Group signals in the S&P 500 Futures pit in Chicago.   (AP Photo/M. Spencer Green, File)

When the Fed made the surprising announcement last week that it would not ease up on its bond purchases, it looks like some traders may have gotten an early leak of the news—and such a leak may have helped them make quite a bit of money. The Washington Post and Mother Jones break it down:

  • The Fed announcement was made at exactly 2pm according to Washington's national atomic clock.
  • It should have taken the information 7 milliseconds to reach Chicago. Instead, a few "massive" orders—betting correctly on the Fed decision—were placed in Chicago exchanges just 1 to 3 milliseconds later. (The orders were for gold futures contracts; the price of gold jumped after the announcement.)
  • According to market analysis firm Nanex, $600 million in assets could have changed hands in those few extra milliseconds before other Chicago traders had the information.

The news was first reported by CNBC and Quartz. So what happened? It's still not clear. The media got an early look at the data, but reporters were in a secure room and not allowed to communicate with anyone outside until exactly 2pm. Even so, the Post speculates it could have been a leak from either the media or the Fed itself, or perhaps a technical glitch. The Fed says it's contacting media organizations to make sure the lock-up rules are understood. Nanex's founder believes a single actor is responsible for the early orders. "This is not a bad technology case. This is a somebody’s-hand-is-in-the-cookie-jar case," he says. "The Fed news was leaked to, or known by, a large Wall Street firm who made the decision to pre-program their trading machines in both New York and Chicago and wait until precisely 2pm when they would buy everything available." (Read more Federal Reserve stories.)

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