On May 18, 2015, the ECB's Benoit Coeure held a closed-door speech under "Chatham House" rules in which he leaked to an audience of hedge funds in London that "the central bank would moderately front-load its purchases in its quantitative easing program because of the seasonal lack of market liquidity in the summer." The reaction was an instant 50 pips drop in EURUSD as one or more funds decided to ignore the "rules", and promptly traded on the material, market moving leak.
The problem for the ECB is that it had just disclosed material, non-public, was inside information to a group of market professionals fully aware they would trade on the news. It wasn’t released to the trading public until around 8am the next day (London time) when it resulted in a further 150 pip plunge. This, for lack of a better word, was criminal.
As egregious as this obviously was, it didn't surprise us or anyone else familiar with the relationship between policymakers and those who essentially gamble on policy decisions, aka the commercial banks who own the central banks. Indeed, it was simply another example of nefarious intermingling between central planners and a select group of private sector operators and came just as Jeb Hensarling began to turn up the heat on Janet Yellen regarding leaked Fed data (an investigation that has gone precisely nowhere).
To be sure, once caught leaking market moving data to a select group of billionaires, just a few days later the ECB blamed the fiasco on an "internal procedural error" and promised such behind the scenes meetings with hedge funds profiting from ECB leaks would not happen again.
It happened just a few months later when as the FT reported in November "some of the European Central Bank’s top decision-makers met banks and asset managers days before major policy decisions, and on one occasion just hours before, copies of their diaries reveal."
The diaries show two members of the ECB’s executive board, Benoît Cœuré and Yves Mersch, met UBS bank the day before a two-day policy meeting of the central bank’s rate-setting governing council on September 3 and 4 2014. Mr Cœuré also met BNP Paribas bank on the morning of September 4, the day the ECB’s governing council surprised markets by cutting interest rates. It also announced it would begin buying private sector assets to save the eurozone’s economy from the threat of deflation. UBS and BNP Paribas declined to comment.
It would appear that when it comes to leaking ECB data, Benoit Couere is the designated middleman whose only job is to notify commercial banks of top secret ECB decisions. Of course, the ECB was troubled by these recurring allegations, and said that "officials never discuss market-sensitive information in private meetings. "The quiet period refers to public communication ahead of monetary policy governing council meetings. The same underlying principles — guarding against signalling future monetary policy — are of course applied to bilateral meetings. In any case, no market-sensitive information is disclosed by the ECB in any non-public forum,” an ECB spokesperson said.
Ironically, just 6 months earlier, the same Couere had very deliberately leaked market-sensitive information to a select group of hedge funds.
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Fast forward to March 10, 2016 when the ECB announced the biggest expansion to quantitative easing in European history, when it shocked the market by announcing not only a reduction in its negative rate and expansion in the TLTRO program, but also the launch of a corporate bond monetization program.
Well maybe not "shocked" the market, because as Bloomberg writes, ECB board members met with representatives of banks and investment managers including Goldman Sachs, BlackRock, Credit Suisse and Moore Europe Capital Management in February, just days before the ECB's March 10 announcement, records published on Friday showed.
Once again the ECB was holding closed door sessions ahead of key market moving events, and if the events from 10 months prior are any indication, the ECB has allegedly leaked everything it was preparing to do to a select group of banks.
As Bloomberg reports, the ECB has released the Executive Board’s diaries, with a three-month lag, since the start of this year under a drive to become more transparent. The latest edition covers part of the period between the Jan. 21 monetary policy meeting, when President Mario Draghi signaled the need for more stimulus, and the March 10 session when the ECB lowered interest rates and expanded a bond-buying program.
The documents don’t cover the weeklong “quiet period” before policy meetings, when board members are supposed to refrain from making comments that could influence expectations about monetary policy decisions.
The Frankfurt-based central bank is treading a fine line between keeping abreast of market sentiment and avoiding the perception that some participants get an unfair advantage from confidential meetings. While guidelines have been tightened in the past year after the inadvertent release of price-sensitive information at a dinner for financial professionals in May 2015, the subsequent risk of a disconnect was shown in December when markets sold off after the ECB announced a smaller stimulus package than investors had anticipated.
But what we find most entertaining is that it was once again the same designated leaker, the ECB's "markets chief" Benoit Coeure who was instrumental in perpetuating the ECB's allegedly criminal information leakage.
ECB Vice President Vitor Constancio and markets chief Benoit Coeure each met with Goldman Sachs in Shanghai on Feb. 27 and Feb. 28, respectively, the diaries show. The men were in the Chinese city for the Group of 20 meetings of finance ministers and central-bank governors. Coeure also met with Credit Suisse and BlackRock over those two days. The topics were described broadly as covering global economic and financial issues.
Benoît Coeuré, executive board member of the European Central Bank
Why the European Central Bank would be meeting with a private bank-slash-central bank incubating hedge fund at a meeting whose purpose was to secretly implement the Shanghai Accord and weaken the dollar, is unclear.
Oh wait, we almost forgot that the head of the ECB is former Goldman partner, Mario Draghi, the same person who was instrumental in creating, and covering up, the FX swaps designed to cover up the tragic Greek economic situation as the insolvent European nation was becoming part of the Eurozone.
And now it all falls into place.
While Draghi’s diary is dominated by meetings with fellow central-bank heads and finance ministers, he also met with Royal Bank of Scotland Group Plc on Feb. 3. to discuss European Union “economic and financial issues.”
Many other banks were also notified: Peter Praet, the ECB’s chief economist, met with Nomura, Germany’s Deka Group and Brussels-based BNP Paribas Fortis, as well visiting SGH Macro Advisers in New York. Other meetings included Yves Mersch with Roubini Global Economics and Moore Europe, Coeure with Deutsche Bank AG, HSBC Holdings Plc and France’s Attali & Associes, and Constancio with Axa Group.
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So did the ECB once again leak material, market moving, non-public information to some of the biggest investors in the world? There is a very simple way to prove it did not: release the full transcript of what was said. This, however, won't happen for the same reason the Fed will never release the transcript of what was said between Janet Yellen and former Goldman partner and BOE head Marc Carney on February 11 at the trough of the market dump, nor will the Fed release what was said between Janet Yellen and former Goldman partner and ECB head Mario Draghi the very next day as stocks soared.
Why won't these critical transcripts be released? Because as the Fed explained to a Zero Hedge reader a month ago, "the responsive document contains nonpublic commercial or financial information" and while "the document containing the exempt information was reviewed... no reasonably segregable nonexempt information was found." Case closed.
This came from the "most transparent Fed ever", and organization that is supposedly there to serve the people, not the banks... who just happen to be its owners as Ben Bernanke's former advisor explained.
We doubt the most leaky if least transparent ECB would be any better.