In the lock-up, reporters are able to review and prepare stories before the official release time without being able to transmit their reports outside the room until a Fed employee restores data connections at release time. That's the theory anyway.
But anyone who can get their hands on market-moving data in advance of it being released can make a nice profit.
Way back in the old days, I knew a pretty famous money manager who figured out a way to get release information a few minutes before it hit the wires. Let's just say, it worked for him.
All this raises the question, what exactly is going on at the Fed these days? Data is somehow getting released out of the lock up early.
Greg Robb at MarketWatch reports:
At least one media organization prematurely released news on Thursday from the Federal Reserve, the second early data release from the central bank in the last three months.
Dow Jones Newswires released headlines on August industrial production at 9:08 a.m Eastern. The data was scheduled for release at 9:15 a.m....
The Fed’s own inspector general has been critical of the data lockups, questioning why the central bank even holds them.
Fed officials say the process is used to facilitate “smooth and accurate” reporting of sensitive economic information.
But at least five news organizations now compete to release high-speed feeds so that automated traders are able to execute trades the instant that the data become available, the Fed’s inspector general said in a report.
The report called on the central bank to consider how news organizations are using their access to embargoed information “and whether such activities advance the Fed’s stated purpose” in providing the information early.There are a lot of smart guys on Wall Street. I can think of some very good reasons why one of them would want news to hit a wire a few minutes early. This doesn't look good for the Fed at all.