After the ECB’s leak, central bank treatment of market sensitive information requires a rethink


On Monday ECB executive board member Benoit Coere announced that the bank, as part of its quantitative easing program, would front-load bond purchases before the European summer to ensure market liquidity would remain sufficient in what is a traditionally quiet period for markets.

The announcement saw the Euro plunge nearly 2% against the US Dollar, lowered sovereign bond yields and sent equity markets sharply higher.

The Euro plunge


However, following its official release, it was discovered that not all market participants would have been surprised by the announcement.

Only hours before, while addressing an invitation-only dinner attended by several fund managers and bankers, Coere made the exact same announcement.

Understandably many market participants, not privileged enough to be listening to Coere hours earlier, were outraged.

And they are right to be. Providing sensitive information to a select few before others brings into question the very integrity of the market.

In other circumstances, similar actions by a private company to fund managers or investors could and would almost certainly be prosecuted under law.

In response to the outrage, the ECB announced overnight that they would stop providing journalists embargoed copies of speeches to “tighten up procedures” according to a report from Reuters.

That, in itself, is an curious response from the ECB. While ceasing embargoed news releases, at the margin, will reduce the likelihood of market leaks, it’s hard to understand how exactly this move will prevent a similar event in the future?

At this stage there is no evidence to suggest the speech was leaked by the media – certainly the huge market moves following its official release time suggests it wasn’t the case.

The issue in this instant is that a senior ECB official, speaking in front of influential market participants with no media present, provided sensitive information that was always likely to create a substantial move across the markets.

Ceasing embargoed news releases won’t do anything to avoid a repeat of this week’s event.

Questions about the integrity of central banks when dealing with market sensitive information are not limited to the ECB. Many believe the Reserve Bank of Australia has backgrounded selected journalists to telegraph its intentions on interest rate decisions. US Federal Reserve chair Janet Yellen has also been under scrutiny after meeting with a research firm that is suspected of having obtained leaked information from the Fed.

The select release of information to specific people can cost market participants very significant amounts of money. The consequences are real.

What happened this week was unacceptable, and should act as a major wake up call.