The Sydney Morning Herald on May 10 reported that an employee of National Australia Bank (NAB) and an official of Australian Bureau of Statistics (ABS) were arrested by Australian Federal Police (AFP) on charges of forex insider trading. NAB employee Lukas Kamay is suspected of using his friend access, ABS official Christopher Russell Hill, in order to get unreleased economic data which subsequently used to trade in forex market.
Insider Trading On Economic Data - How?
We have often heard of insider trading cases in the stock market. Certain individual who held position in a company leaks critical secrets to his accomplice who then proceed to buy or sell the company's stocks by taking advantage of the leaked information. Such action makes it unfair for other market players who has no access to those information, and therefore it is commonly considered illegal and unethical. Many cases have been uncovered, where the perpertrators are put in jail and their ill-gotten gains are seized.
But it is not often we heard of insider trading scandals in the forex market. After all, the only "secret" is kept under the title of "embargoed until..." by advanced countries' government agencies across the world. The revelation procedures too, has been known to take place in a highly secretive environment. That should provide more guarantee than the good old lock and key in private companies, shouldn't it!? Too bad, history and experience has told us that government officials are not incorruptible.
The way it should be, accesses to economic data are forbidden to anyone but authorized government official who are involved in the preparation and presentation of the dataset. At a predetermined time and place, selected reporters from internationally known medias such as Bloomberg and Reuters are gathered to receive the report. They has just minutes to digest the report before they are allowed to release them for public consumption. Seconds afterward, worldwide investors learn the content of the report, hopefully, at the same time.
Fundamental economic data are not of concern for most people in the world, but they are highly sensitive info for market players. A drop of one percent or two on unemployment data not only means that several thousands people out of job, but also that several million dollars in stocks, bonds, and currencies might change hands. The price on informations that could influence financial market continue to get higher as the bet increases along with worldwide trading volumes. High-degree secrecy in related government agency, however, does not guarantee that leakage will not occur. Someone on the government agency staffs could stealthily gain access, or someone on the authorized officials list leaks the important info.
That was how Kamay and Hill supposedly managed insider trading conspiracy using Australian economic fundamental dataset. Melbourne-based forex broker Pepperstone reported Kamay to Australian financial market regulator ASIC because of his suspicious trades; Kamay is said to make his trades just seconds before the economic reports are released by ABS. In another word, it could be that he received the embargoed economic datas before the public did, and with the info he made profits from forex market movements. The number of forex broker that have became the victim of Kamay and Hill apart from Pepperstone is still unknown, but this is undeniably a huge case. The AFP said that they have uncovered $7 million asset from the crime that allegedly started since August 2013, and Sydney Morning Herald mentioned that the number might make it the biggest insider trading case in Australia.
The two university friends' conspiracy would be a very sophisticated method of news trading if only it is not illegal and the police successfully dragged Kamay and Hill to the court. Nonetheless, let's remember that the two are innocent until proven guilty. Whatever we have written in this page does not mean they did what they are accused of. We would need a court verdict on this case, one that is not available yet.