Market abuse: £8 million fine on Swift Trade for “layering” confirmed by the Upper Tribunal: “as serious a case of market abuse of its kind as might be imagined”

The Upper Tribunal has confirmed the Financial Services Authority’s 2011 fine of £8 million on Swift Trade for market abuse. Our post on the FSA’s original 2011 action is here.

This is the largest fine ever imposed by the FSA for market manipulation (i.e. FSMA section 118(5)). The Tribunal’s decision is here.

From the FSA’s press release today:

“The Upper Tribunal (Tax and Chancery Chamber) has directed the Financial Services Authority (FSA) to fine Swift Trade, a non-FSA authorised Canadian company with global operations, £8m for market abuse. The Tribunal described this as being “as serious a case of market abuse of its kind as might be imagined”.

Between 1 January 2007 and 4 January 2008, Swift Trade engaged in a systematic and deliberate form of manipulative trading known as “layering”. The manipulative trading caused a succession of small price movements in a wide range of individual shares on the London Stock Exchange (LSE) from which Swift Trade made substantial profits.

The trading was widespread and repeated on many occasions involving tens of thousands of orders by many individual traders sometimes acting in concert with each other across many locations worldwide.

FSA speech on “Challenging the culture of market behaviour”

4 December 2012 speech by Jamie Symington, Head of Wholesale Enforcement at the Financial Services Authority; covers:

• The FSA’s policy of “credible deterrence:
  • Rising number of STRs;
  • SMARTS software to improve surveillance and detection of market abuse;
  • Build-out of enforcement capability;
  • Decline in suspicious activity pre-announcement of takeovers, to 20% in 2011;
  • Market abuse successes;
• An overview of the Einhorn / Greenlight Capital case;
• Thematic and educational work; and
• The future approach of the FCA.

See also: Einhorn / Greenlight Capital posts.

Market abuse: hedge fund manager and two traders fined and banned for “window-dressing the close”

The Upper Tribunal has confirmed the FSA bans and (in two cases) fines on Stefan Chaligné, a Swiss-based hedge fund manager, Patrick Sejean, a former senior salesman on Cantor Fitzgerald Europe’s London-based French desk and Tidiane Diallo, a former junior trader on the same desk, for what the Tribunal described as “as serious a case of market abuse of its kind as one might conceive” (in this case, the limb of the market abuse offence at section 118(5) FSMA 2000). The Tribunal’s decision is here. From the FSA press release:

“Chaligné, a French National who was both the fund manager of, and a shareholder in, the Cayman Islands based “Iviron” hedge fund deliberately manipulated the market in a total of nine securities traded on a number of different European and North American exchanges. He did so by placing orders, through CFE, which were designed to increase the closing price of the securities, and thereby increase the value of the hedge fund, on two key portfolio valuation dates for the fund.

The practice of manipulating share prices on portfolio valuation dates (month and year ends) is known colloquially as “window-dressing the close”. Having manipulated the price of eight securities on 31 December 2007, Chaligné then also manipulated the price of two securities on 31 January 2008.

The increases in the valuation of the fund enabled Chaligné to present a positive view of the performance of the fund, at a time of difficult market conditions, to current and prospective investors, and thereby present himself as a competent fund manager. The practical effect of his market abuse was to increase the performance and management fees paid to him by the beneficiaries of the hedge fund.

Sejean and Diallo effected and executed Chaligné’s orders for the purpose of achieving Chaligné’s objective. Diallo was involved on one of the dates. Sejean was involved on both dates and deliberately influenced and involved more junior members of staff, including Diallo, in the misconduct. They both understood the manipulative nature of the orders.”

More market abuse here.

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Section 397 FSMA to be amended in LIBOR reforms

HM Treasury today published the Wheatley Review of LIBOR (and press release here), commissioned by the Government as a response to the Barclays LIBOR manipulation affair. The recommendations of particular interest from a legal perspective are that (see section 2 of the Review):

• “administering LIBOR and submitting to LIBOR become regulated activities under the Financial Services and Markets Act 2000 (Regulated Activities Order);
• controlled functions are created in connection with both of these activities;
• the UK supports efforts in the EU to proceed swiftly with developing and implementing a new civil market abuse regime and open and transparent access to benchmarks; and
• section 397 of the Financial Services and Markets Act 2000 is amended to enable the FSA to prosecute manipulation or attempted manipulation of LIBOR”.