The FSA has warned it will come down hard on individuals or firms trying to benefit from false or misleading market rumours.
The measures come as the FSA concludes its report into the rumours spread about financial difficulties at HBOS in March which were linked to huge slumps in the bank’s share price.
Several of the rumours identified HBOS by name, the FSA found, and they contended the Governor of the Bank of England had cancelled his Easter travel plans in order to resolve a liquidity problem at HBOS and/or that the Bank was “bailing out” HBOS.
However, the regulator found that despite the likelihood the rumours contributed to the fall in the share price, it had not uncovered evidence they were spread as part of a concerted attempt by individuals to profit by manipulating the share price.
It says it is also difficult to say how much impact the rumours had as the share price was also affected by the interaction of a number of other complex factors on the day, including:
- A lack of liquidity in the order book with parties unwilling to enter buy or sell orders, particularly after the automated trading halt
- The effect of algorithmic trading strategies, which amplified the impact of the initial downward trend in the HBOS share price.
However, despite its findings proving inconclusive, the FSA says market participants should expect its surveillance and investigation activity will continue at a high level of intensity.
“Where individuals or firms appear to have benefited following false or misleading rumours, we will require individuals and/or firms to provide immediate access to traders, information and trading strategies as well as to make available email, messaging and telephone records. Where there is evidence of market abuse then we will take enforcement – including criminal – action.”
Its markets division has also launched a review of the systems and controls at firms for dealing with rumours and will reveal the results in the autumn.
The FSA will examine what policies are in place on market rumours and how firms ensure compliance with them. It will also assess whether and how rumours are verified; whether traders are permitted to pass on or trade on rumours; and how firms ensure staff do not initiate or spread false rumours.
Its research will extend to a range of investment banks, securities firms and hedge fund managers.IFAonline
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