CNBC has a lengthy and fascinating report online Tuesday about that some traders in Chicago somehow received word about the Federal Reserve Board’s announcement last week that it would not be scaling back its support of the economy. The investigation centers around a matter of milliseconds where traders were able to move large amounts of money ahead of a broader release of the news.
Considering it is impossible for a human to make a decision in the time in question, the story brings up serious questions about the impact of automated trading on market fairness. But that is no way my expertise, nor the purpose of this column.
What is particularly interesting about this piece though is the detail it offers about the elaborate process the Federal Reserve goes through to give a group of reporters a preview of the news while ensuring they do not publish the information in advance of the announcement. Here is what the piece describes:
In advance of the release of the market moving decision, Federal Reserve officials followed a standard procedure to choreograph a tightly planned embargo operation that gave reporters advance copies of the Fed’s decision. Inside a secure so-called “lockup” room on the top floor of the William McChesney Martin Jr. building, Fed officials instructed reporters not to send information about that decision to the outside world before precisely 2 p.m. EDT as measured by the national atomic clock in Colorado.
The doors were locked at 1:45 p.m., and Fed staffers handed out copies of the statement at 1:50 p.m., allowing reporters a few minutes to digest the complicated document before reporting on its contents. At 1:58 p.m. television reporters were escorted out of the room to a balcony where cameras had been positioned. The Fed’s security rules dictated that television reporters were not allowed to speak before precisely 2 p.m. Print reporters were told they were allowed to open a phone line to their editors at headquarters offices a few moments in advance of the hour, but not allowed to interact with people on the other end of the line until exactly 2 p.m.
On top of those precautions, every media person entering the lockup—including two employees of CNBC—was required to sign an agreement that read: “I understand that I may make no public use of the documents distributed by Federal Reserve Board (FRB) staff or the information contained therein, including broadcasting, posting on the Internet or other dissemination, until the time the FRB has set for their public release.”
It is unquestionably a lot of work to ensure news is disseminated simultaneously. Why would the Federal Reserve (and other organizations) take such pains to give a group of reporters highly complex news only minutes ahead of time?
Typically, embargoing news should only be done when the extra time you give a reporter results in a meaningful change in the coverage. By change, I do not want to imply an embargo is a way to get favorable coverage, but rather to ensure that highly complex news influencing a large number of people is accurately reported right out of the gate. So what can the Fed get in 15 minutes?
In that 15 minutes the Fed can make sure that reporters at least get the core message right and it does not turn into a “circus”-type moment that we have seen recently with U.S. Supreme Court decisions. That is a deceptively strong argument, as confusion about such critical financial news could have drastic consequences on the market.
However, given the potential implications even a milliseconds leak could have on the fairness of the marketplace, it may be prudent for the Fed to enhance its direct communications and reconsider the effectiveness of the lockup rooms. When leaks are a major concern, sometimes the only option is to limit the number of people involved. A more developed, “self-publishing” approach to communications could include things like a Fed broadcast center or newsroom that employs former journalists.
As many major PR firms have stated, self-publishing is a growing trend among corporate America and one that the Fed may want to explore itself. At the end of the day, what is clear is that balancing the need for market fairness and accurate reporting is a complicated and relentless battle for the Fed’s communications leaders.