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£8 Million Market Abuse Penalty Justified

An £8 million fine imposed by the Financial Services Authority (FSA) on a trading company that engaged in deliberate manipulation of the stock market for its own profit and to the detriment of other investors was fully merited, the Upper Tribunal has ruled. Over a 12-month period the company had been systematically involved in a form of market abuse known as ‘layering’, whereby stocks were bought and sold at, respectively, artificially low and high prices.

In appealing against the findings of market abuse under section 118 of the Financial Services and Markets Act 2000, the company had argued that the FSA’s action was ill-conceived as the relevant trades were not in shares, but in synthetic derivatives. It was also submitted that the trades were not in fact initiated by the company; that the method it employed was legitimate high-volume day trading by which traders bet on intra-day price changes in the equity markets and that the trades were transparent to the market and did not result in any investor making a loss.

However, dismissing the company’s appeal, the tribunal rejected arguments that it had merely provided a platform for independent dealers. It found on the evidence that the company had engaged in a deliberate and manipulative trading technique which was designed to maximise its profits and which had successfully deceived other market users.  On analysis of relevant graphs and statistics, the clear pattern of trading that emerged could not be attributed to coincidence and the tribunal had no doubt that it was ‘the product of a directing mind’.

Also upholding the fine as appropriate, the tribunal said that there was no evidence on which it could draw the conclusion that the company had operated transparently and within the confines of recognised market practice, nor that it could reasonably have believed that its conduct was not abusive.