Hedge funds listened to Bank of England briefings a few seconds earlier | Hacker News Reader

Hedge funds listened to Bank of England briefings a few seconds earlier

theguardian.com

129 pointshhs60 comments

Suggestion that this is related to BoE downsizing their cyber security department : https://www.theguardian.com/business/2019/dec/21/bank-of-eng...

Also, more coherent version of the main story than OP : https://www.theguardian.com/business/2019/dec/19/hedge-funds...

Useful, thanks. The FT also offered a good analysis this morning. If interested, it’s here: https://www.ft.com/content/e5e1daea-21f6-11ea-92da-f0c92e957....

http://archive.md/qSbWL

A hedge fund pays off one of the BoE's providers and it's the BoE's fault because.. what?

It suggests poor risk management and auditing at least.

Ok, we've changed the URL to that latter link from https://www.nasdaq.com/articles/hedge-funds-hacked-into-bank.... Thanks!

not hacking. having access to an audio feed over a video feed that requires buffering is hardly news. kudos to whoever realized that you could get the information faster over audio when the information was released at the same time across both channels.

>kudos to whoever realized that you could get the information faster over audio when the information was released at the same time across both channels.

According to the article, the audio feed was a backup, and a third party supplier misused it. It definitely wasn't someone "realizing" that there was a public audio feed with a lower delay.

>the Bank confirmed that a third party supplier “misused” an audio feed of certain of the Bank press conferences since earlier this year. The audio was installed to serve as a back-up in case the video failed.

This is like leaving important information open and then blaming someone else for not auditing you.

Both parties have blame and one of them is trying to throw the other under the bus.

What gives you the impression that's the case? The impression I got is that the "third party supplier" was the company contracted to operate the backup stream, and thus was entrusted not to divulge the information (similar to how employees of public companies can't divulge or trade on confidential information they have access to). This isn't a case of BOE leaving information unguarded, this is a third party abusing information that they've been entrusted with.

Why would they not divulge audio from a public, live streamed announcement?

Because the public feed has latency, and their feed (that's only supposed to be used for backup purposes) doesn't?

It's reasonable to suspect that the party in charge of handling the audio wouldn't have considered that latency to the end user between the two streams would make their release not synchronous.

They may even have thought that a few seconds could still be called synchronous, unaware of the advantage this presented in this particular case.

What does a “backup” mean, really? When a site posts multiple links to a stream, latter ones are “backups” but I’m not forbidden from using them. Most of the time, backups are just less good alternatives. Ostensibly, a non-video stream should fit the bill...

>When a site posts multiple links to a stream, latter ones are “backups” but I’m not forbidden from using them.

That analogy only works if the BOE makes both streams available on a public basis. If the company is contracted only to provide a backup stream in case the primary failed, it stands to reason that they do not have the rights to stream/broadcast during normal circumstances. From a legal standpoint, it would be similar to eavesdropping on the live press conference using a bug.

It's a public press conference, you can't eavesdrop on it.

Presumably it's not the type of press conference where the announcement in made in front of multiple journalists and news station cameras. If it was, well... I doubt banks would be paying £2,500-£5,000 (as claimed by the guardian) because they could just send an intern with a microphone for less.

“Failed” is interesting in this context as it could be argued that only the backup feed was “working” 10 seconds before the other went live.

It wasn't supposed to be available ordinarily, it was a backup feed they could switch over to if required.

The supplier was selling access to it without the right to do so, and knowing full well what they were selling.

One thing that I find really weird is that insider trading is virtually impossible to prevent.

Knowing this, what should we do? Create a system where insider trading has negligible effects? Or try to attack it as much as possible?

I'm still confused as to who is actually harmed by insider trading. Can someone explain?

The people who don't have insider information. When you adjust for the value actually created by a company, the stock market is a zero sum game. Insider trading moves profit allocation from evenly divided among shareholders to an uneven allocation where shareholders with inside information earn a greater than owed share of the upside.

>When you adjust for the value actually created by a company, the stock market is a zero sum game.

Not really. For example: if I am a terminal cancer patient that wants liquidity now to do the things I want to do before I die, and you are a pension fund that only really cares about the return thirty years from now, I can trade the stock that I have to you in exchange for money I can spend right now at a price both of us agree on and (this is the important bit) BOTH of us gain from the transaction.

The terminal cancer patient and the pension fund are not the entire field of shareholders. Your scenario does not contradict the idea of a zero sum game for the whole stockholdings of a company, or the stockmarket as a whole.

Maybe, but what’s more likely in such a scenario would be that the edge gained by insider trading would entirely evaporate. But more to the point, it’s corporations not people who have a rational interest in keeping insider trading illegal. After all, individuals who are insider trading on a company are effectively stealing from said company. Since the corps don’t want their employees taking their money, they have strong incentives to support very tough insider trading laws. In my opinion it should be a civil matter, but the corps and the government have very effectively sold the “stealing from the working man’s retirement fund” in order to justify some very aggressive tactics, previously only reserved from the Mafia and the like.

Harmed by lack of advantage really.

But you’re right, if someone wasn’t going to buy a stock unless they had insider knowledge, they are no worse off since they never would have bought it anyways.

What about existing shareholders?

Similar, no?

If insider information would lead you to sell ahead of bad info, it’s really losing out on that advantage, since you would have held onto it regardless.

The idea of making it legal is that the price would more accurately reflect all info (public and insider).

The concern is more with second order effects. If potential investors who don't have access to insider information think the market is rigged then they'll be less likely to invest, thus increasing the cost of capital for businesses.

Ironically I've heard the exact opposite effect being proposed as a reason for allowing insider trading. If you allow people to profit from their knowledge about inner workings of a company then that information will find its way to the market faster since people are incentivized to take a position and then capitalize on it. Not sure if that's too simple of an explanation but it seems facially plausible. In this framework the market would have more timely information about the state of things so investors could potentially be more likely to invest overall.

“100 to 1 in the stock market” quoted an SEC chairman as saying if insider trading was made legal, the insiders would lose a whole lot of money. In his experience, inside info caused more activity which was generally worse for the actors than inaction. If I remember, I’ll look the quote up when I get home. That book was loaded with great one-liners.

https://www.bloomberg.com/opinion/articles/2019-01-16/even-c...

Unless you’re saying that insiders actually are worse than random in beating the market before trading costs, it’s highly unlikely. After all, when not then just trade against the information and make money?

Anyways the above Levine post talks about this issue. The dollar weighted win-rate of the Edgar hackers was 77%, which is very very high. This would indicate that inside information is incredibly valuable and that those with access to it have substantial alpha over the market.

I'm not sure I have a real answer, but reading about pump and dump schemes on cryptocurrencies I can see why this would be forbidden on real markets.

In actuality, who knows? But the rational for it isn’t fairness, but rather theft. If I work at WalMart and I trade on insider information (let’s say I work on a deal team negotiating to buy a company for WalMart), I’m stealing from my employer, which arguably creates bad incentives. In my opinion insider trading should be a civil issue, but the big corps have successfully convinced the government to take up arms on their behalf under the populist guise of fairness.

If insider trading is allowed the company management can defraud the investors because their own actions influence stock price. So they can just sell their stock, do something that lowers stock price and buy it back.

That’s why there are people talking about making it legal. The more people that trade on insider information, the more accurately the stock price reflects it.

Great, but we are talking about a market where "inside" information is already legal.

Well, if you do a look back after a company makes a major public revelation, it’s common to see a lot of trades ahead of it, suggesting that there is a lot of insider trading anyways.

Sure, but that doesn’t mean it’s illegal. Finding some documents in a dumpster or overhearing a deal team drunk at a bar and then trading on it is perfectly fine. Generally there has to be some quid pro quo or deliberate knowledge on behalf of the insider that he’s giving you information for trading. Word goes around fast on trading desks and the vast majority are trading on legal or grey area information.

The government makes the laws intentionally vague so it’s really hard to tell.

Then it wouldn’t be “insider”, it would be public. The term insider designates that it’s non-public. If you make it public, then some new piece of information would become “insider” information that others don’t have. You can’t operate a business 100% transparently

Ops point being if enough people who know the inside information act on it then market price would reflect it. This would reduce the significance of the advantage.

Misleading headline, no "hacking" going on, instead a supplier selling access to a feed they shouldn't have been giving out to others.

Oh, so, just standard non-cyber crime then. Seems like such things should be tagged.

Unclear to me if it's a crime. I haven't seen anyone say this usage was explicitly banned in the BoE contract. If not, it was certainly sleazy by the vendor but more a failure of the BoE to properly vet and draft agreements then a crime.

The issue is did anyone trade based on the information. Then it would be considered insider trading.

For example, lets say that you work at Apple. Walking down the hallway one day you see Tim Cook trip and fall on the way to the lunch area. The fall is really bad and he is unconscious and bleeding heavily. If you immediately sell your Apple stocks based on that, that would be insider trading.

This is because you work at Apple, and are thus privy to info like that. The hedge funds who would've traded aren't insiders, so a better analogy would be a non-Apple-employee seeing Tim Cook trip and fall somewhere in Cupertino and then buying Apple puts.

The information shouldn't have been leaked, but if it wasn't illegal to do so, then I don't see how the funds who traded on the info could be liable in any way.

>would be a non-Apple-employee seeing Tim Cook trip and fall somewhere in Cupertino and then buying Apple puts.

this isn't really a good analogy either, because the people who got "discovered" the information had no relationship with Cook or Apple. In this case, the company who's providing the information had a relationship with the BOE because they were contracted to provide the stream.

>The information shouldn't have been leaked, but if it wasn't illegal to do so, then I don't see how the funds who traded on the info could be liable in any way.

depends on the jurisdiction:

>In the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information likely to have an effect on the company's share price, the duty the corporate insider owes the company is now imputed to the friend and the friend violates a duty to the company if he trades on the basis of this information.

https://en.wikipedia.org/wiki/Insider_trading

The title is a little misleading. What actually happened was that one of BoE's suppliers was surrepticiously selling access to an audio feed which was 8 seconds ahead of the video which was intended to be a backup in case the video feed failed.

We've taken a crack at a better title above. If someone can suggest a better one, we can change it again.

Is this automatically generated? The first five paragraphs say the same thing with slightly different wording.

It’s possible and likely. A lot of financial news outlets use software to automatically describe market movements and the intra-day movements of single stocks.

In a way, hackable information is also public information

That’s equivalent to saying ‘If I can steal your car then the car is free.’ Keep in mind the definition of ‘public’ is not merely that it’s accessible but also that the greater public has access and time to consume the information that could affect the stock price.

When I read or watch or listen to something it doesn't cease to exist in some sort of Mission Impossible effect. So no, not equivalent.

In the US insider trading law is that information must not only be made public but have reasonable time to be disseminated. What exactly that means in the era of text parsing quantbots is unclear but it is the law.

The article doesn't say so and I haven't found an explanation. Why was the audio only feed 8 seconds faster then the video feed? Why is this time difference needed?

In earlier reports, it was mentioned that the extra time is due to the compression and processing of the video stream.

In that case, why not delay both?

Incompetence on the part of BoE and/or malice on the part of the third-party provider.

It's a truism that non-tech industries are really, really REALLY bad at basic technical things (like operating servers): banks in particular apparently had their Web security divisions run by 12 year olds well into the 00s. It's not clear to me what organizational or incentive barriers there are to competent tech outside of the tech industry, but I've grown to expect them

Because it was a backup feed that was not supposed to be accessed by anyone unless the video feed failed, so it shouldn't matter if it is delayed or not.

Reply on news.ycombinator.com