Last month, the head of the British Parliament's Treasury Select Committee called on the main UK regulator (the Financial Conduct Authority, FCA) to investigate leaks of UK economic data. Analysis published today provides further evidence that several important reports are being disclosed to market participants before official release times.
The analysis was carried out by Alexander Kurov, Associate Professor of Finance at West Virginia University, for the Wall Street Journal. Readers might recognize his name as he co-authored a working paper published by the ECB last year that suggested some US economic data is leaked ("Price drift before U.S. macroeconomic news: private information about public announcements?").
For the UK, Professor Kurov found significant price drift in both Gilt futures and the British pound prior to the time of release for inflation, industrial production and labour market data. By contrast, he found no evidence of information leakage for Swedish economic releases when looking at the price action in the Swedish krona. His study shows that in the UK, in the hour prior to the publication of the economic figures, about half of the impact of the data is priced into the market. There is almost no pre-release impact in Sweden, where the move in EURSEK, the most liquid krona-denominated product, averaged less than the bid/offer spread.
UK economic data is susceptible to being leaked because of the number of people who have access prior to publication. In Sweden, only statistics office staff see the data ahead of schedule. In the UK, up to 118 "lawmakers, advisers and press officers" are privy to the contents of the release. Given the financial incentives to pass along what is, in effect, insider information, it is hardly surprising that data is leaked. Indeed, anyone with a screen and a brain (or a data feed and an algo) has long suspected such.
The issue of data leakage is not confined to the UK. In 2014, Australian authorities found a stats office employee was leaking economic data to a trader at one of the big four banks. In 2016, the New Zealand central bank confirmed that its surprise rate cut was leaked by a journalist, though in that case the motivation seems to have been a scoop rather than trading profits.
The FCA's response to the Parliamentary Select Committee is due in May. Whether it leads to prosecutions or not could depend on the seniority of the leaker, at least if the US is the template. Recently retired regional Fed president Lacker admitted to passing on important information about FOMC deliberations to consultancy Medley Global Advisers and the previous US administration leaked details of Russian sanctions to a select group of asset managers ahead of time. Neither Lacker nor the relevant Treasury Department and National Security Council staff were prosecuted, let alone convicted or sanctioned.