Fed following up on report of unusual trading around FOMC statement

The US Federal Reserve said on Tuesday it was following up with news organisations over a report of unusual trading around the release of its monetary policy statement last week.

The report by CNBC television cited a wave of trading activity in Chicago at 2pm ET (2am HKT) on Wednesday that appeared milliseconds ahead of other trades based on the Fed’s surprise announcement that it was not tapering its bond buying.

The policy-setting Federal Open Market Committee’s decision not to start scaling back purchases from an US$85 billion monthly pace spurred a broad rally in financial markets, including gold.

CNBC credited Chicago research firm Nanex for spotting significant activity in Comex gold futures, traded in Chicago, which it calculated was five to seven milliseconds ahead of a subsequent spike in gold transactions in New York.

Nanex said traders in New York would normally have had about a five-millisecond advantage over traders in Chicago on news coming from Washington, because of their proximity to the nation’s capital and the time it takes for the data to be transmitted.

The company’s chief executive, Eric Hunsader, said there were US$800 million worth of futures contracts traded in Chicago in the first seven milliseconds after 2pm ET on Wednesday, mostly in financial and precious metals futures contracts.

“This is unusual because it takes information seven milliseconds to go from Washington to Chicago ... meaning that the news must have been already in Chicago,” he said. “This raised my eyebrows.”