FSA censures traders after their appeal
THE FINANCIAL Services Authority yesterday censured two bond traders who had appealed against market abuse allegations, stopping short of issuing a hefty fine or a lifelong ban.
The news prompted speculation that more people would now choose to appeal to the FSA Regulatory Decision Committee (RDC), as the watchdog forges ahead with its aggressive enforcement policy.
Darren Morton and Christopher Parry, both senior portfolio managers at Dresdner Kleinwort – now owned by Commerzbank – were found to have committed market abuse in relation to their handling of $65bn (£41bn) in Barclays debt.
Morton and Parry said they believed they were acting in accordance with market practice when they sold Barclays’ bonds in March 2007 after Morton was told that a new issue was to be announced on more favourable terms.
It is standard practice for banks to contact key investors to gauge appetite, or “sound out” the market, before publicising new stock or bond issues, and Morton argued it was perfectly acceptable to trade ahead of new issues in the market.
When the regulator disagreed, the traders decided to challenge the decision at a formal hearing with the RDC, headed by chairman Tim Herrington. The move was unusual, as most people accused by the FSA agree to settle in exchange for a significant “cooperation” discount.
But the FSA said its decision to issue a censure reflected the fact that traders may not have been fully aware of the rules, but warned that “future offenders will be likely to face significantly more severe sanctions”.
“Insider dealing is cheating, whatever market it is in. It was argued that practices in the debt market meant it was always acceptable to trade after being ‘sounded out’ on a new issue,” said FSA director of enforcement Margaret Cole. “This is not the case.”