In the trading industry, time is money. The faster you have access to information that can move markets, the earlier you can get in and the more profits you will make. In the UK, an eavesdropping operation conducted by some hedge fund traders on the Bank of England’s press conferences is now the latest scandal in the trading sector.
The scheme involved Bank of England’s information supplier who charged £5,000 from their clients in exchange for information. The bank streams their announcements through an official video feed that is managed by Bloomberg. A separate audio feed was set up a few years ago as a backup in case the video transmission failed.
“An unidentified supplier had apparently been taking recordings from the audio feed, which is five to eight seconds faster than the video and selling it on to an offshoot company. That company then sold its services to high-speed trading firms in a situation that has been going on since the start of 2019, and potentially for longer,” according to the Daily Mail. Though a six to nine-second early access to information might seem not important to a layperson, a trader can reap millions in such scenarios.
Trading firms that focus on high-speed trades have installed microwave transmitters in order to save milliseconds from the time it takes to transmit orders. Now, the surprising thing about the entire incident is that it might even be legal! Some have compared it to insider trading since the hedge funds received information about a public announcement seconds before the rest of the world. The Financial Conduct Authority (FCA) is said to be looking into the matter, examining whether the clients who received the information benefited from it or not.
“The tricky bit here is proving the degree to which people traded and profited from this information. We know from previous financial investigations that proving such things can be extremely difficult. It could be especially hard in this case because the Bank of England hasn’t made too many dramatic statements on policy over the last few years. And we have to remember the currency markets are massive, with a turnover of around US$4 trillion dollars a day. So establishing the audit trail could be difficult,” Russ Mould, Investment Director at investing platform AJ Bell, said to the Daily Mail.
The UK has also been seeing a rapid rise in online trading scams, specifically in the cryptocurrency and foreign-exchange markets. Reports of such cases rose to 1,800 in the 2018-2019 period, compared to just 530 incidents during 2017/2018. The total amount lost by the victims turned out to be £27 million, with an average loss of £14,600 per individual.
“These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms… It’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate,” Pauline Smith, Director of Action Fraud, the UK’s national center for reporting fraud and cybercrime, said to Business Times.
Another report prepared by a consumer group showed that British banking customers were losing about £674 per minute to fraudsters who successfully convince them to transfer money into their accounts. Most fraudsters use social media to promote their “get rich quick” online trading schemes. Often, the first investment an individual makes will be shown to have made a profit. The criminals do this to entice the victims to invest more, only to snatch away the money when the individuals transfer it.