An £8 million fine for market abuse imposed on a now-defunct Canadian trading firm has been upheld on appeal. The Upper Tribunal described Swift Trade’s conduct as, “as serious a case of market abuse of its kind as might be imagined”.
It is the largest fine the Financial Services Authority (FSA) has ever issued against a firm for market manipulation.
Layering
The case relates to a system of manipulative trading known as “layering”, which the FSA believes was used by the company over the course of a year, from early January 2007.
Layering occurs where orders are placed in order to artificially affect the stock price. On this occasion, large orders were placed for certain shares on the London Stock Exchange (LSE), followed by a trade on the opposite side of the order book, to take advantage of the share price movement caused by the initial placements.
Both the original large orders and the follow up trades were then deleted.
According to the FSA, the manipulative trading caused a succession of small price movements in a wide range of individual shares, and garnered substantial profits for the company. It led to a false or misleading impression of supply and demand and an artificial share price in the shares traded - to the detriment of other market participants.
FSA action
Swift Trade was voluntary dissolved in December 2010, after changing its name to 7722656 Canada Inc, and transferring its assets to a former holding company. Despite this, the FSA published its decision notice against Swift Trade in August 2011, and proceedings are continuing.
Swift Trade appealed the decision notice, arguing, among other things, that “the activity about which the Authority complains was not manipulative, but legitimate high volume day trading.”
The Upper Tribunal did not agree. It found that the FSA had proved its case that Swift Trade had engaged in layering activity which constituted market abuse.
What is market abuse?
In very general terms, the types of behaviour and situations covered by market abuse include:
- dealing or attempting to deal with an investment on the basis of inside information about that investment;
- disclosing inside information to someone else other than in the proper exercise of employment;
- using information which is not generally available but which, if it were, would be considered relevant in determining the basis on which transactions would be made;
- transacting in such a way that is likely to give a false or misleading impression as to price, supply or demand or that secures an abnormal or artificial price for the investment; and
- using deception or fictitious devices in effecting transactions.
According to the Upper Tribunal, “the graphs, the other material we saw and the evidence we have outlined lead compellingly to the conclusion that the trading we have described was deliberate, manipulative, designed to deceive other market users, successful in that aim, and undertaken for motives of profit.”
It was therefore market abuse.
Cynical case
“This was a particularly cynical case where a business model was based on market abuse,” said Tracey McDermott, FSA director of enforcement and financial crime.
“The approach taken by Swift Trade was novel and complex, designed to allow them to benefit at the expense of other market users, and to make detection more difficult. The FSA is committed to taking whatever steps are necessary to protect the integrity of our markets whatever the techniques used and wherever the perpetrators are located,” she said.
Contact our FSA Defence Solicitors
For specialist legal advice and criminal defence representation against FSA prosecution or investigation, please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032.
*This blog is intended as a news item only. No connection between Lewis Nedas Law and parties to the case is implied.
