Investors may have received early word on Fed policy

Matthew Boesler of Bloomberg News writes about an academic research study that concludes that some investors received leaks about changes in Federal Reserve Board policy.

Boesler writes, “On days the FOMC policy decision deviated from market expectations, ‘back-of-the-envelope calculations indicate that the aggregate dollar profits’ from early access to the statement ranged between $14 million and $256 million, the authors said in the study titled, ‘Can information be locked up? Informed trading before macro-news announcements.’

“The Fed, starting with the release of its FOMC statement on Oct. 30, tightened regulation of the lockup.

“The stricter rules were adopted ‘to better protect the information against premature release,’ Joe Pavel, a Fed spokesman, said yesterday. ‘We review our processes and controls on an ongoing basis and make adjustments as necessary to address any issues.’

“Under new procedures, journalists from media organizations, including Bloomberg News, gather in a room at Fed headquarters in Washington. They are forbidden to carry phones into the lockup, and lines connecting their computers to the Internet are blocked.

“Journalists are given the FOMC statement 20 minutes before its release to the public, giving them time to prepare stories. When the 20 minutes elapse, lines of communications are opened and journalists allowed to transmit their stories.

“Under prior rules, the Fed released the statement in the press room of the U.S. Treasury Department about 10 minutes before the release time. While journalists promised to respect the embargo, computer lines weren’t blocked.”

Read more here.