03 Sep Assets of alleged share manipulators freezed by FSA
The Financial Services authority has taken out an interim injunction at the High Court to freeze the assets of several investment firms and traders the regulator says have manipulated share prices on UK trading platforms.
In the wake of the financial crisis, the crackdown on the practice – known as layering – is a further indication of the tougher approach taken by the UK regulator in recent years. It also comes two years after the watchdog warned the market to be aware of how trading technology was creating new opportunities for potential market abuse.
On Thursday, the regulator issued proceedings against Da Vinci Invest Ltd, a UK-registered, Swiss-based fund manager, a related Singapore-based company Da Vinci Invest PTE Ltd, and Mineworld Ltd, which is registered in the Seychelles, as well as traders Szabolcs Banya, Tamas Pornye and Gyorgi Brad.
The High Court has approved the freezing of £1.1m of assets, and the FSA will contact foreign authorities to secure the freezing of assets held in other jurisdictions. Da Vinci’s main fund has $3.1m under management, according to its website.
So-called layering involves submitting multiple orders to create the impression of liquidity in a stock when the trader’s actual intention is ultimately to trade in the opposite direction. Orders are then quickly cancelled or withdrawn, with the trader then making real trades if prices have moved to the trader’s advantage.
To work, it requires a superfast internet connection and direct access to the market, effectively bypassing a broker. Some brokers offer Direct Market Access services to attract more customers.
This is only the second case brought over layering by the FSA. The announcement comes a day after the FSA fined Swift Trade, a defunct Canadian day-trading firm, £8m for manipulating London stock prices through electronic trades placed around the world.
Regulators around the world, at the same time are looking at trading conducted at ultra high speed by computers, often known as high frequency trading. The practice, which accounts for up to 60 per cent of average daily volume in US markets, looks to exploit trad
ing patterns and anomalies in prices by trading in microseconds.
The FSA alleges the companies and individuals traded across a number of UK trading platforms including the London Stock Exchange and other multilateral trading platforms. The FSA said it believed the manipulation was done by placing large orders for shares which they had no genuine intention of allowing to trade.
Between August 2010 and July 2011, the UK regulator estimated the companies made more than £1m gross profit from the activity. The regulator won a court order freezing the assets of the companies on July 12 and a further order continuing the freezing injunction and restraining the market abuse on 31 August.
The FSA investigation and the court case continue.