Market abuse is a concept that encompases unlawful behaviour in the financial markets and usually consists of the following:
- Insider dealing
- Unlawful disclosure of inside information; and
- Market manipulation
The market abuse behaviour prevents full and proper market transparency, which is a prerequisite for trading of all economic parties in integrated financial markets.
It is the illegal practice of trading on the stock exchange, for one's own advantage, through the possession of confidential information. The trading can be on any securities - stocks, bonds, warrants, derivatives, etc. Usually, the trader (called the "insider") has possession of confidential information, which is not available to public. He/she uses this information to trade in the market. It is not necessary that such trading results in profits only; even if losses arise such trading is considered illegal. Insiders could be employees, directors, consultants and other persons who have acquired the confidential information either by being involved in some activities related to such information or are outsiders but have come to know about it though an insider. The rules of insider trading could be complex and vary from country to country.
Unlawful disclosure of insider information
This arises when a person in possession of inside information (confidential information) discloses that information to another person to whom such information is not required to be disclosed. It is not important whether the person who received such information uses it for trading purposes or not. Mere disclosure may be sufficient enough to be considered as a market abuse and therefore illegal. Not all such disclosures are unlawful. Some disclosures about aspects such as social behaviour, culture, salary structure, promotions, management style, etc., may not be considered as market abuse as disclsoure of such information does not affect the transparent functioning of the markets. Such disclosures may be illegal as per the company's internal employment rules or code but not as per the financial market rules.
Examples of unlawful insider disclosures are:
- X, a director at B Plc has lunch with a friend Y, who has no connection with B Plc or its advisers. X tells Y that his company has received a takeover offer that is at a premium to the current sthare price at which it is trading.
- A person discharging managerial responsibilities in B Plc, asks C, a broker, to sell some or all of A's shars in B Plc. C discloses to a potential buyer that A is a person discharging managerial responsibilities or discloses the identity of A.
It is hard to define market manipulation because it can take place in so many ways. But we can, in general, define it as any acts or ommissions which result in artifically increasing or decreasing the price of a security or otherwise influencing the behaviour of the market for personal gains.
Some of such acts could be as follows:
- entering into a transaction, placing an order to trade or any other behaviour which:
- gives, or is likely to give, false or misleading signals so as to the supply of, demand for, or price of, a financial instrument, a related spot commodity or an auctioned product based on emission allowances; or
- secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level;
unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour has been carried out for legitimate reasons, and conform with accepted market practice.
- entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employ a ficticious device or any other form of deception or contrivance
Types of Market Abuse
Spoofing and Layering
Traders can place relatively large bids or offers with the intent to cancel them before execution (spoof orders) after another smaller bid or offer (resting orders) had been placed on the opposite side of the market. Traders place these orders with the intent to create the false appearance of market depth. In other words, the purpose of spoof orders is to create an impression of greater buying or selling interest than would have existed otherwise.
Layering is a form of spoofing where a person enters into multiple orders at different levels in order to create the illusion of market liquidity.
Wash trades are trades that cancel each other out and have no commercial value. But they are used in a variety of trading situations. In general, a trader may collude with another trader or broker to enter into trades that have no commercial relevance but provide misleading information to the market. Sometimes, a traders may execute trades as both the buyer and the seller of the security, thereby misleading the market.
Wash trades are illegal in US but are not illegal in all circumstances in other countries.
Marking the Close
This involves buying or selling qualifying investments at the close of the market with the purpose of misleading investors who act on the basis of closing prices, other than for legitimate reasons. This practice is also referred to as "banging the close".
Painting the Tape
This involves entering into a series of transactions that are shown on a public display for the purpose of giving the impression of activity or price movements in a qualifying investment.
Entering orders into an electronic trading system, at prices which are higher than the previous bid or lower than the previous offer, and withdrawing them before they are executed, in order to give a misleading impression that there is demand for or supply of the qualifying investment at that price
This involves buying and selling on the secondary market of qualifying investments or related derivatives prior to the auction with the purpose of fixing the auction clearing price for the auctioned products.
Cornering and Abusive Squeezes
Cornering happens when a person with significant control over the supply and/or demand of a product engages in a behaviour to corner the market with the aim of positioning the price of that product at a distorted level. A sqeeeze arises when a party does not seek dominance but attempts to gain control of sufficient amounts of a commodity or security to impact prices.
Bull and Bear Raiding
Bull and Bear Raiding (sometimes called spreading "rumours") constitutes taking a position in a security, publishing or disseminating false information in order to move the price of the security and then closing the position.
The practice of trying to boost the price of a share by buying the securities in the market with the object of raising demand. If the price rises, the ramper may be able to make a quick profit by selling them. In order words, one may ramp the price of a security through the impact of their own trading. Not all rampings are illegal; it is determined in case-to-case basis on specific qualified securities.
Compensation Trades and Money Passes
The objective of compensation trade is not to manipulate markets. They are a variant of wash trades which are affected between two parties to facilitate cash payment to one party using a securities transaction as the medium to effect the payment. Examples include the generation of commission for counterparties as consideration for some form of other service. This has been used during LIBOR scandal. I shall cover this in depth in a seperate article.
A money pass is a transaction undertaken by a party controlling two or more accounts or entities used as a conduit to move money between those two accounts.
Parking is the sale of securities subject to an agreement or understanding that the securities will be repurchased by the seller at a later time and at a price which leaves the economic risk on the seller. It is a form of position concealment. Parking activity can also be used to sustain a firm which has insufficient capital to carry on its business. Parking is different from bona fine repurchase agreements and stock borrowing and lending activities which are undertaken under legitimate commercial contract terms. The purpose of parking is to mislead others.
Pooling (also known as "Pool") is a multi-party dealing ring which undertakes transactions for the purpose of giving a false impression of market activity or to ramp prices and subsequently close positions at a profit. Generally, the parties nominate a key individual known as the Pool Manager. The transactions between the pool members are undertaken at progressively higher prices (normally) in smaller size until the price target is reached, at which point positions are liquidated and the market is left to adjust. The strategies can last over a few days to weeks or months.
A typical pool operation might involve sales by counterparty A to counterparty B, who then sells to counterparty C, who sells to counterparty D, who then sells to counterparty A. The reverse is also possible.
The pool may also engage in the practice of publishing wrong research materials, stock tips, media reports, and other marketing materials to generate non-pool investor interest and activity. This practice is called as "puffing". These techniques can be used along with wash trades, matched trades and parking strategies.
Front running is the practice of entering into a transaction in advance of a pending order that will or may impact the price of the relevant security. The practice may involve cross market transactions such as a derivatives transactions ahead of a transaction in the underlying or vice-versa.
In general, there are two types of front running - 1) the front running of client orders; and 2) the front running of firm orders.
Cherry picking is the practice of executing a client or firm order and withholding the allocation to the client or firm pending assessment as to whether the execution is a winning or losing trade. If the market moves adversely, the trade is allocated to the client. If the market moves positively, the trade is taken by the broker.
It refers to a practice whereby a party manipulates the prices of securities held in portfolios to enhance portfolio performance prior to a reporting period.
This term is also used in accounting context whereby an asset is removed from a firm's balance sheet prior to a financial reporting period with an agreement that it will be repurchased after the reporting period.
Examples of market abuse
- A trader simultaneously buys and sells the same qualifying investment (that is, trades with himself) to give the appearance of a legitimate transfer of title or risk (or both) at a price outside the normal trading range for teh qualifying investment. The price of the qualifying investment is relevant to the calculation of the settlement value of an option. He does this while holding a position in the option. His purpose is to position the price of the qualying investment at a false, misleading, abnormal or artificial level, making him a profit or avoiding a loss from the option.
- A trader buys a large volume of commodity futures, which are qualying investments, (whose price will be relevant to the calculation of the settlement value of a derivatives position he holds) just before the close of trading. His purpose is to position the price of the commodity futures at a false, misleading, abnormal or artificial level so as to make a profit from his derivatives position
- A trader holds a short position that will show a profit if a particular qualifying investment, which is currently a component of an index, falls out of that index. The question of whether the qualifying investment will fall out of the index depends on the closing price of the qualifying investment just before teh close of trading. His purpose is to position the price of the qualifying at a false, misleading, abnormal or artificial level so that the qualifying investment will drop out of the index so as to make a profit; and
- a fund manager's quarterly performnce will improve if the valuation of his portfolio at the end of the quarter in question is higher rather than lower. He places a large order to buy relatively illiquid shares, which are also components of his portfolio, to be executed at or just before the close. His purpose is to position the price of the shares at a false, misleading, abnormal or artificial level.
- A trader with a long position in bond futures buys or borrows a large amount of the cheapest to deliver bonds and either refuses to re-lend these bonds or will only lend to parties he believes will not re-lend to the market. His purpose is to position the price at which those with short positions have to deliver to satisfy their obligations at a materially higher level, making him a profit from his original position.
- painting the tape - that is, entering into a series of transactions that are shown on a public display for the purpose of giving the impression of activity or price movement in a qualifying investment.
- entering orders into an electronic trading system, at prices which are higher than the previous bid or lower than the previous offer, and withdrawing them before they are executed, in order to give a misleading impression that there is demand for or supply of the qualifying investment at that price; and
- buying or selling on the secondary market of qualifying investments or related derivatives prior to the auction with the effect of fixing the auction clearing price for the auctioned products at an abnormal or artificial level or misleading bidders in the auctions, other than for legitimate reasons.
List of market abuses
- Insider dealing
- Improper disclosure
- Misuse of information
- Manipulating transactions
- Manipulating devices
- Dissemination; and
- Misleading behaviour and distortion
Category of fines imposed by CFTC in 2019.
||Number of cases
|Manipulative, Conduct, Spoofing
|Misappropriation of Confidential Information, Trade Allocation Schemes, Mismarking
|Protection of Customer Funds, Supervision, and Financial Integrity
|Swap Data Reporting
|Illegal Off-Exchange Contracts, Failure to Register
|Other trade practice, including wash trades, ficticious trades, position limits
|Record keeping, Other reporting
|False information to CFTC or SRO, violation of prior orders
Fines imposed by FCA in 2019
Conor Foley, former CEO of Worldspreads
||Firm / Individual
||Mr. Kevin Gorman
||Failing to notify trading in shares to their issuer and the FCA as a PDMR in the issuer sector.
||Professional Personal Claims Limited
||Misleading consumers to claims in the claim management companies sector.
||Henderson Investment Funds Limited
||Unfair treatment of customers in the Asset Management sector.
||Tullet Prebon (Europe) Limited
||Wholesale conduct and failing to be open and cooperative in the trading firm sector.
||The Prudential Assurance Company Limited
||Mis-selling and the unfair treatment of customers in pensions sector.
||Cathay International Holding Limited
||Breaches of the listing principles and disclosure rules and transparency rules in the issuer sector.
||Breaches of the listing principles and disclosure rules and transparency rules in the issuer sector.
||Eric K Chi Siu
||breaches of the listing principles and disclosure rules and transparency rules in the issuer sector.
||Standard Life Assurance Limited
||Breaches of PRIN 3, PRIN 6 and COBS related to the unfair treatment of customers in the Life Insurance sector.
||Bank of Scotland, Plc
||Breaches of PRIN 11 and SUP, related to failing to be open and cooperative in the retail banking sector.
||R. Raphael & Sons Plc
||Breaches of PRIN 2, PRIN 3, and SYSC 8 related to culture/governance in the retail bank sector.
||Linear Investments Ltd
||Breaches of PRIN 3 related to market protection and market abuse in the trading firm sector.
||Standard Chartered Bank
||Breaches of the Money Laundering Regulations 2007 related to financial crime in the investment and retail banking sector.
||Goldman Sachs International
||Breaches of SUP 17, SUP 15 and PRIN 3 related to transction reporting failures in the investment banking sector.
||Breaches of SUP 17, SUP 15 and PRIN 3 related to transction reporting failures in the investment bank sector.
||The Carphone Warehouse
||Breaches of PRIN 3, 6 and 9 related to mis-selling in the general insurance and protection sector.
||Hargreave Hale Limited
||Breaches of competition law in the asset management sector.
||River & Mercantile Asset Management LLP
||Breaches of competition law in the asset management sector
||Breaches by an individual for failure to observe proper standards of market conduct.
||Stewart Owen Ford
||Breaches related to mis-selling, failing to be open and co-operate and conflict of interest
||Mark John Owen
||lack of fitness/propriety and failing to act on information appropriately in the asset management sector.
WorldSpreads Limited (WSL) was a UK registered, and FSA regulated, financial spread-betting firm. It was wholly owned by WorldSpreads Group plc ("WSG") an Irish registered company, and had sales offices across Europe.
Mr. Foley the ex-CEO of WorldSpreads Limited (WSL), and its holding company WorldSpreads Group plc (WSG), was involved in drafting admission documentation ahead of WSG's floatation on the Alternative Investment Market (AIM Market) of the London Stock Exchange in August 2007.
The FCA considers that these documents contained misleading information and ommitted key information that investors would have needed to make an informed decision about the company.
In particular, the documentation did not mention that some WSG executives had made significant loans to WSG and its subsidiaries. This was also never disclosed in the annual company accounts.
It also did not mention an internal hedging strategy by which certain of WSG's subsidiaries hedged considerable trading exposures internally with company executives. This was not disclosed in the annual accounts until at least 20019.
The FCA considers that between January 2010 and March 2012, large spread bets were placed on the shares of WSG on the trading accounts of WSL clients on terms which made statements in WSG's Annual Accounts as to its credit policy false and misleading. In addition, large spread bets were carried out on two clients' accounts by Mr. Foley himself without the knowledge of the clients and this had the effect, in view of the FCA, of giving the appearance of greater demand for WSG shares than in fact existed.
The FCA fined and banned Mr. Foley, WSL's CFO, Niall O'Kelly and its Financial Controller, Lukhvir Thind, in April 2017 for falsifying critical financial information concerning WSL's client liabilities and its cash position, which was passed to the company's auditors. By 31st March 2011, these misstatements amounted to £15.9 million. WSL was unable to meet this client money liability which ultimately led to its collapse.
Date: 14th January 2020
Abuse type: Misleading information in financial statements and insider trading
Redcentric is an IT service provider. It provides network, cloud and collaboration services to private and public sector organisations, including the NHS.
Redcentric issued unaudited interim results and audited final year results which materially misstated its net debt position and overstated its true asset position in circumstances where it knew, or ought to have known that the information was false and misleading. As a result, investors were misled and paid more when purchasing shares that they would have done had they known its true position.
Publicly listed companies must ensure the market is properly informed with timely and true information. In this case, Redcentric issued misleading final year results, harming its own investors and confidence in the market. When the company revealed the true position in November 2016, many investors who had purchased Redcentric shares in the preceeding 12 months suffered immediate losses. These losses are directly attributable to the misleading statements issued by the company 12 months earlier. Investors deserve to be told the truth and uncomfortable news cannot be hidden for very long.
In this case, Redcentric has agreed to provide compensation for affected investors to make good the losses while also preserving the company's ongoing business at a time when the business is providing vitally needed services in the fight against coronavirus (COVID-19).
On 7th November 2016, Redcentric announced that its audit committee had undertaken an internal review of Redcentric's interim results for the 6 months ending September 2016, which had discovered misstated accounting balances in the Group's balance sheet. Redcentric stated in this announcement that its Board had commenced a forensic review of its current and historical balance sheet and would delay publication of its interim results.
The FCA estimates the losses to affected shareholders to be approximiately £43 million.
Redcentric has agreed to initiate a scheme to provide some compensation to all net puchasers of Redcentric shares during the period from 9th November 2015 to 4th November 2016 (the latter being the last trading day before the announcement of 7th November 2016.) Redcentric estimates the value of the scheme to potential claimants is £11.4 million and that each Claimant will have a basic entitlement to receive an overall value of approximately 17 pence for each net share purchased.
This is the first time an AIM listed company has offered to implement its own scheme to pay some compensation to those affected by the harm it caused as a result of market abuse. The FCA has taken into account Redcentric's approach to compensate affected shareholders, and has decided to impose a public censure rather than a financial penalty.
In a seperate action, the FCA has instituted criminal proceedings against three former employees of Redcentric Plc for making false and misleading statements.
Fine: No fine, only public censure
Date: 26th June 2020
Abuse type: Misleading information in financial statements
Braemar Shipping Services
Braemar Shipping Services is a leading provider of knowledge and skill-based services to the shipping, marine and energy industries. The Group comprises of four operating divisions, Shipbroking, Financial, Engineering and Logistics.
Mr. Kevin Gorman was a former Managing Director at Braemar Shipping Services plc (Braemar). He carried out the trades in his capacity as a person discharging mangerial responsibility (PDMR) at Braemar.
Under the MAR regulations, persons who are PDMRs and those closely associated with them are required to notify the FCA and the issuer of every transaction conducted on their own account above a certain threshold within 3 business days.
This includes transactions in the issuer's shares, debt instruments, derivatives and other linked financial instruments. Transparency of trading by directors and other responsible officers is a key element of market integrity and helps to police the market against illegal insider trading. Directors of listed companies must ensure they report their trading on time and risk or risk undermining market integrity.
Mr. Gorman was found to have sold shares worth a total of £71,235.28 on 3 occasions between 24 August 2016 and 18th January 2017 without informing the FCA or Baemar within the required 3 business days. The FCA did not find that Mr. Gorman traded whilst in possession of any confidential inside information. But, nonetheless, due to the failure to abide by the rules, he was fined £64,300. However, on account of Mr. Gorman's agreement to resolve the matter, he qualified for a 30% discount on his penalty, resulting in a £ 45,000 fine.
Name: Mr. Kevin Gorman
Fine: £ 45,000
Date: 12th December 2019
Abuse type: Insider trading
Tullett Prebon (Europe) Limited
Tullett Prebon, a part of TP ICAP, is an electronic and voice inter-dealer broker, acting for institutional clients transacting in the wholesale financial markets, typically, investment banks. The Rates Division of Tullett Prebon carried out 'name passing' broking which comprised a significant part of Tullett Prebon's overall business, employing many brokers and generating significant revenues for the firm.
Following an FCA investigation, the FCA found that, between 2008 and 2010, Tullett Prebon's Rates Division had ineffective controls around broker conduct. Lavish entertainment and a lack of effective controls allowed improper trading to take place, including 'wash' trades (a 'wash' trade involves no change in beneficial ownership and has no legitimate underlying commercial purpose) which generated unwarranted and unusually higher amounts of brokerage for the firm.
The FCA observed that: 'The market performs important public functions and is not a private game of self-enrichment. While these trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market. Senior management and compliance were cocooned from seeing the misconduct, and systems and controls failed to probe broker conduct, even when warning signs were visible.
The case against Tullett Prebon was a long and complex one. The firm's failure to be open with the FCA about the existence of key evidence reflected a high degree of culpable incompetence and prejudiced the FCA enquiries.
Senior management wrongly believed that sufficient systems and controls were in place, when in fact, systems and controls were not used or directed effectively. Obvious red flags or broker misconduct and opportunities to probe were missed. For example, when the firm made inquiries of one broker about the basis for inordinately high brokerage on one trade the broker responsible said 'you don't want to know' and no steps were taken to identify the reasons, let alone whether they were appropriate.
These are serious failings that undermine the proper function of wholesale markets.
Tullett Prebon failed to be open and cooperative with FCA. The breach occured between August 2011 and October 2014 and related to the FCA's request to Tullet Prebon in August 2011 for broker audio tapes. Although Tullet Prebon had the majority of the audio that the FCA required, they failed to produce the audio to FCA until 2014. Tullet Prebon initially provided an incorrect account as to how the audio had been discovered.
This breach is considered to be serious. Tullet Prebon agreed to resolve this matter and therefore qualified for a 30% discount under the FCA's settlement discount scheme. Without this discount, the fine would have been £ 22 million.
Name / Company: Tullet Prebon (Europe) Limited
Fine: £ 15.4 million
Date: 11th October 2019
Abuse type: Wash trades and non-cooperation with regulatory authorities
Fabiana Abdel-Malek and Walid Chouchair
Fabiana Abdel-Malek was employed as a senior compliance officer by the investment bank UBS AG in their London office and used her position to identify inside information which she passed to her family friend Walid Choucair, an experienced day trader of financial securities, using pay-as-you-go mobile telephones. Choucair made a profit of approximately £ 1.4 million from that trading.
Abdel-Malek's compliance role at UBS covered investment banking which meant she was trusted with access to price-sensitive information about potential mergers and acquisitions held within UBS on its compliance system. This sytem contained information about any proposed merger and acquisition transactions that UBS was either pitching for or working on.
Despite being well aware of the restrictions on disclosing inside information, Abdel-Malek searched the compliance system and obtained inside information relating to the proposed takeovers of five companies. Abdel-Malek repeatedly accessed inside information, across a number of transactions, over a sustained period. She created and printed documents containing inside information copied from the UBS compliance system. She then disclosed the inside information to Choucair, who traded in the shares of the target companies:
- Vodafone Group Plc's acquisition of Kabel Deutschland Holding AG (June 2013)
- Essex Property Trust Inc's acquisition of BRE Properties Inc. (November - December 2013)
- LG Household & Healthcare Ltd's potential acquisition of Elizabeth Arden Inc. (April 2014)
- American Realty Capital Partners' potential acquisition of NorthStar Realty Financial Corporation (April 2014)
- Energy Transfer Equity LP's potential acquisition of Targa Resources Corporation (June 2014)
Choucair dealt in anticipation of a press article or company announcement that would cause the share price of the target company to rise significantly. Following the press article or company announcement Choucair would start to close his positons. Chouchair conducted his trading by dealing in Contracts for Differences (CFDs) through an account held in the name of a company incorporated in British Virgin Islands with a trading address in Switzerland.
Over the course of the indictment period, Abdel-Malek and Choucair sought to conceal their criminal activity by using unregistered pay-as-you-go mobile phones, changing and swapping SIM cards at regular intervals, to communicate with each other. On occasions Abdel-Malek would be in contact with Chouchair while in the office looking at UBS's compliance system. In order to further disguise the fact that she was contacting Choucair she used an unregistered phone model identical to her work-issued Blackberry. Both Abdel-Malek and Choucair would change their unregistered mobile phone numbers on a regular basis in a further attempt to avoid detection. When interviewed after her arrest, Abdel-Malek lied to the FCA and denied using unregistered mobile phones. Choucair declined to answer questions in interview.
Name / Company: Fabiana Abdel-Malek and Walid Choucair
Abuse type: Insider trading
Linear Investments Limited (Linear)
Linear is an authorised firm providing its clients with a range of brokerage services, including access to trade execution via electronic Direct Market Access. Linear also acts as a principal for a number of Appointed Representatives ("ARs"), which operate in a number of fields including brokerage, asset management and research. As the principal firm, Linear is responsible for any authorised activity undertaken by ARs. As with any other broker, inherent within Linear's business was the risk that clients may commit market abuse. Linear did not appreciate the need to undertake its own separate surveillance based on information available to it and its perspective; it mistakenly believed that it could rely upon post-trade surveillance undertaken by the brokers through which it executed transactions. This was incorrect. Regardless of post-trade surveillance checks being undertaken by underlying brokers, Linear was also responsible for undertaking its own checks using information available to it. Linear was at all times responsible for ensuing that it had effective post-trade surveillance systems in place to enable it to detect and report potential instances of market abuse.
In June 2018, the FCA issued a Decision Notice in relation to Linear's failure to take reasonable care to organise and control its affairs responsibly and effectively to ensure potential instances of market abuse could be detected and reported. The breaches occured from 14th January 2013 to 9th August 2015.
FCA imposed a financial penalty of £ 409,300. Linear challenged the financial penalty in the tribunal. The Upper Tribunal recognised that, despite the pain caused by the size of the penalty, given Linear's financial resources and level of profits, Linear's lack of effective monitoring measures was a serious matter and the FCA's penalty was therefore appropriate.
Name / Company: Linear Investments Limited
Fine: £ 409,300
Date: 7th June 2018
Abuse type: Insider trading
Goldman Sachs International
A transaction report is a data set submitted to the FCA that relates to an individual financial market transactions which includes, but is not limited to, details of the product traded, the firm that undertook the trade, the trade counterparty, the client (where applicable) and the trade characteristics, price, quantity and venue.
The FCA uses the information from transaction reports for;
- Monitoring for market abuse
- Firm supervision
- Market supervision; and
- Sharing with certain external parties, such as the Bank of England
During the period from 5th November 2007 to 31st March 2017, Goldman failed:
- to accurately report an estimated 204.1 million transactions (which should have been reported accurately)
- to report an estimated 9.5 million transactions
- to take reasonable steps to prevent the errorneous reporting of transactions where those transactions either did not occur or occured but were not reportable. This affected an estimated 6.6 million transactions.
Goldman failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting. These failings related to aspects of GSI's change management processes, its maintenance of the counterparty reference data used in its reporting and how it tested whether all the transaction it reported to the FCA were accurate and complete.
Goldman agreed to resolve the case and so qualified for a 30% discount in the overall penalty. Without this discount, the FCA would have imposed a financial penalty of £ 49,063,900.
Name / Company: Goldman Sachs International
Fine: £ 49,063,900
Date: 27th March 2019
Abuse type: Failure to report transactions
Paul Axel Walter, Bank of America Merill Lynch International Limited (BAML)
Mr. Walter, an experienced bond trader employed at Bank of America Merill Lynch International Limited (BAML), in the course of his employment carried out a strategy of entering quotes on the BrotecTec inter-dealer trading platform in relation to six Dutch State Loans (DSLs) that were designed to induce, and had the effect of inducing, other market participants who were tracking quotes to raise or lower their quotes so that he could benefit from those price movements.
He represented to the market an intention to buy when his true intention was to sell and represented an intention to sell when his true intention was to buy. When his intention was to sell, his misleading quotes, skewed to Best Bid, induced other market participants to raise their bids. When he wanted to buy, his misleading low offers induced others to lower their offers. Mr. Walter then aggressed (traded by selling bonds into an existing bid or by buying from an existing offer) these bids or offers, thereby trading at a more advantageous price then he would have achieved at that time, but for his having misled other market participants.
Mr. Walter was able to manipulate the market in this way because he knew that certain market participants used automated systems (algorithms) to follow the Best Bid and Best Offer. Mr. Walter took advantage of this to attract these algorithms to follow his quotes and so sell or buy the DSLs at higher or lower prices.
These market participants were affected by Mr. Walter's trading in the relevant period because his trading strategy manipulated their prices and led to them buying DSLs at a higher price than they would otherwise have done and on one occasion selling at a lower price than they would otherwise have done.
Mr. Walter's abusive trading in the 12 instances resulted in a profit of € 22,000 to his book.
Mr. Walter's behaviour constituted market abuse in that it gave false and misleading impression as to the price and supply or demand of the DSLs and it also secured the price at an artificial level.
FCA imposed a financial penalty on Mr. Walter in the amount of £ 60,090 for engaging in market abuse.
Name / Company: Mr. Paul Axel Walter, BofA ML
Fine: £ 60,090
Date: 22nd November 2017
Abuse type: Market abuse by giving wrong bids and offers
END OF MY NOTES