FCA bans and fines trader £663k for manipulating gilt price during QE
Mark Stevenson, a bond trader with almost 30 years’ experience, has been banned from the industry and fined £662,700 for deliberately manipulating a UK government bond – gilt – on 10 October 2011.
Stevenson has a holding worth £1.2bn, which he intended to sell to the Bank of England for an artificially high price during quantitative easing operations that day. The unusual trading was reported within 40 minutes, said the FCA, and the Bank made the decision not to buy the gilt as part of QE.
Had his offer to trade with the Bank been accepted, he would have accounted for 70 per cent of the £1.7bn allocated to QE on that day. If the Bank had then accepted his offer, any subsequent losses it made would have been indemnified by the government.
In its Final Notice, laying out its reasons for taking action against Stevenson, the FCA documents the movements of the broker and key events which led to the manipulation. Here's an excerpt, emphasis our own:
During the day, Mr Stevenson took part in a telephone conversation with Broker A, a friend of Mr Stevenson and an agency broker. During the telephone conversation with Broker A, Mr Stevenson said “And we’ve been loading up with QE trades for months”, and “QE’s are … cake…”. The Authority has concluded that Mr Stevenson was indicating his belief that QE was an opportunity to profit from selling gilts to the BOE.
Stevenson agreed to settle at an early stage of the investigation, meaning he got a 30 per cent discount. Without this discount, the FCA would have imposed a fine of £946,800.
Tracey McDermott, the FCA director of enforcement said:
Stevenson’s abuse took advantage of a policy designed to boost the economy with no regard for the potential consequences for other market participants and, ultimately, for UK tax payers. He has paid a heavy price for his actions.
Fair dealing is at the heart of market integrity. This case sends a clear message about how seriously the FCA views attempts to manipulate the market.
This is the first enforcement action taken against someone who attempted to, or actually did, manipulate the gilt market.
Meanwhile, in a separate statement, the regulator's also confirmed today that most advisory firms using the work “independent” to describe their service are doing so accurately.
Its Retail Distribution Review, which came into force last year and is designed to “improve outcomes for consumers” by upping standards of professionalism, will also see the regulator looking at firms who are still not sure on what standards they have to meet to call themselves “independent”, it said.
Nick Poyntz-Wright, director of long-term savings and pensions at the Financial Conduct Authority, said:
Most firms are using the ‘independent’ tag correctly, which is important in helping consumers understand what service they are buying.
But, for those firms who remain unsure, we are providing further help so that they can better understand the standards they need to meet.
The FCA’s working in three cycles to analyse how firms present their advisory services to customers and whether those calling themselves “independent” are actually acting so in practice. It’ll release its second cycle of research in April.