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Market Abuse – We’ll meet again, Don’t know where, Don’t know when…

“You don’t make progress by standing on the sidelines whimpering and complaining. You make progress by implementing ideas”

Shirley Chisholm (an American politician, educator, and author)

When we hear this topic there is a danger, we close our ears and think we’ve heard it all before, remember:

  • Deutsche Bank $14 Billion Suggested Settlement in the US Mortgage Litigation
  • Top 20 European Banks paid $125bn in fines in 2015
  • Five largest US Banks Paid $137bn in fines
  • RBS £8bn fine for RMBS sales

I always like to go back the issue within the FX market to put things in focus

  • REMEDIATION – Significant Multi-billion Dollar Remediation and Continuing Infrastructure and Control Costs
  • FX COST – Wiped Out a Whole Year’s Revenues – or Given Typical Cost Income Ratios, Perhaps 2-3 Entire Years of Net Profits – for the Entire Global Spot FX Industry
  • FX MARGINS – The Total Cost of the FX Problems was Equivalent Roughly to a 15% Per Annum Compound Erosion of Bid-Ask Spreads in the Spot Market over the Past 5 Years: For a Product with One of the Tightest, Most Competitive Dealing Spreads in Wholesale Markets

For as long as there have been markets, there have been participants trying to gain an illegal edge. 

As technology evolves and trading patterns change so too does the potential for more sophisticated market abuse. But before we get to that, let’s take a trip down memory lane…

A Quick History Lesson

A screenshot of a cell phone  Description automatically generated
Source: FMSB

In fact, in the UK we can trace it back further to cases of grain and commodity squeezes in the 14th century.

What is clear if you scan the list is that no asset class or jurisdiction is immune. A point will come back to again later.

So why have we not learned from the past, after all as far back as 1929 the NYSE experienced stock market manipulation.

Did financial markets simply believe the odd adage that:

“History doesn’t repeat itself, but it often rhymes,” as Mark Twain is often reputed to have said?

It’s Getting Personal

If we fast forward to today, we have an additional yet important aspect to throw in the mix to avoid such assumptions, our old friend individual accountability. The extended Individual Conduct Rules under the Senior Managers and Certification Regime (SMCR) include a specific rule that relates to market conduct:

Under the SMCR staff ‘must observe proper standards of market conduct’.

It is a broad but important statement, but it rationally leads us to the question ‘how do you define proper standards of market conduct’?

The view from the FCA is that there is a continuum of behaviour in the markets and the consideration of how to define appropriate standards of behaviour is important.

It some instances it’s quite obvious. If you know you have inside information, do not trade on the basis of that inside information or share that information with someone to encourage them to do so.

Of course, most often things are not so clear and it’s the ability to both identify and behave appropriately in the grey areas that define the integrity of individuals and organizations.

A former colleague once quoted the below which I still use a lot to frame how difficult this is:

‘The difference between what YOU can do and what you SHOULD do is JUDGEMENT’

This is certainly true when it comes to market abuse, the rules and penalties are quite clear. So that begs the question, why are we still seeing cases happen?


A screenshot of a cell phone  Description automatically generated

Let’s take a look at the first one. Maybe not headline-grabbing but food for thought nonetheless.

The action taken against Mr Gorman shows the individual accountability in full force, especially given his seniority. It’s an extraordinary row between a historic shipping company and a former executive over suspicious share trades​.

Mr Gorman was found to have sold shares worth a total of £71,235.28 on 3 occasions between 24 August 2016 and 18 January 2017 without informing the FCA or Braemar within the required 3 business days. ​

Gorman ran Cory Brothers, a shipping logistics firm founded in 1842 which is owned by London-listed Braemar Shipping Services.​

Braemar sacked Gorman, who headed up Cory, and was a member of the company’s executive committee, after he failed to disclose, he had sold shares in the company​

​Gorman, 56, hit back with allegations of his own, including that employees misused expenses to pay for prostitutes, and engaged in bribery and corruption.​

The FCA did not find that Mr Gorman traded whilst in possession of any confidential inside information.​ Take note – no insider dealing but a case of failing to disclose.

Senior managers notifying the FCA and issuers of their share transactions in a prompt manner is integral to transparency for market participants and maintaining confidence in the markets, as well as the FCA’s effective supervision of the markets.​

Again, a case of judgement or rather misjudgement.

Asset Managers in Focus

On 21 February 2019, the FCA decided that 3 asset management firms, Hargreaves Hale Ltd, Newton Investment Management Limited and River and Mercantile Asset Management LLP (RAMAM), breached competition law. ​

This is the FCA’s first formal decision under its competition enforcement powers.​

The infringements consisted of the sharing of strategic information, on a bilateral basis, between competing asset management firms during one initial public offering and one placing, shortly before the share prices were set. ​

The firms disclosed and/or accepted otherwise confidential bidding intentions, in the form of the price they were willing to pay, and sometimes the volume they wished to acquire. ​

This allowed one firm to know another’s plans during the IPO or placing process when they should have been competing for shares.

The FCA fined Hargreave Hale £306,300 and RAMAM £108,600. ​

They gave Newton immunity under the competition leniency programme and did not fine them.

last minute

​As part of the same case the FCA fined former Newton fund manager Paul Stephany for what he described as “last minute brinkmanship” to bring down prices on capital raising by UK small-cap companies by collaborating with rival firms on pricing.

In relation to the Initial Public Offering (IPO) of ‘On the Beach’ (OTB), Stephany emailed himself, blind copying in 14 fund managers at 11 rival firms urging them to follow his pricing approach​

In the email, he used the words, “Sorry for the out the blue email but I wanted to urge those considering or in for the OTB IPO to think about moving to a 260m pre-money valuation limit. I have done that first thing this morning with my GBP17m order.” ​

He went on to say he did not normally do “last minute brinkmanship on IPOs” but highlighted market weakness concerns and the fact that the book coverage was thin.​

Alexa – is it ok to send this email?

Fear not Stephany had conducted his own online research into permissible practice in relation to IPO pricing before sending the email​.

​Shock horror, this was not the first time that Stephany had engaged in this type of communication​. Several months before the OTB IPO, the FCA also found that Stephany had called two fund managers about Market Tech’s placing

Ok fine, clearly poor judgement and rightly punished as were the firms involved. However, what fascinates me is the reaction by those who received the email.

How would you expect your people to respond to such an email?…

In their Final Notice, the FCA made the point that “the great majority of the external fund managers who received the… email did not express any concerns. Some of them clearly approved of it.”​

Only two fund managers contacted by Stephany escalated their concerns about the email within their firms​. ONLY TWO!

Six managers emailed or attempted to call Stephany with responses ranging from caution to support​. WOW!

  • One fund manager did react by stating that they were not participating in the IPO due to compliance concerns​.
  • Several days after the IPO, another fund manager told Stephany that they would not like to be canvassed on pricing in future​
  • A further fund manager instructed their employees not to “disclose Newton’s investment intentions or expectations”, warning it could be “deemed to be acting in concert” if any fund managers did so



Interestingly, the FCA commented that Stephany “did not intend to breach, and did not foresee that his actions would result in a breach” of the rules​

As a result, the financial penalty imposed on him was set at the lowest level available and he was permitted to continue to work in the financial sector​.

However, he subsequently lost a case against his employer for unfair dismissal​.

This is the second case in recent times, where the employee fined by the FCA has claimed that they did not know that they had acted wrongly and therefore that their actions were not deliberate and the second time that this claim has been accepted by the regulator (although in neither case the individual escaped punishment).

​In the end

So, where does this leave us? Deliberate wrongdoing versus ignorance has long been a dichotomy for the regulators to balance. What is certain is that these cases highlighted the focus on making both individuals and firms accountable and that firms will not be able to ‘blame’ it on a bad egg.

If we go back to the historic look back at the start and consider the recent analysis done by The Fixed Income, Currencies and Commodities Markets Standards Board (FMSB), a standards-setting body for the wholesale fixed income, currencies and commodities (FICC) markets.​

The analysis done by the FMSB, the first of its kind, reviewed over 400 enforcement cases from 19 countries, over a 200 year period, to identify behavioural patterns in market manipulation. ​

They found “relatively few common causes,” but 29 types of behavioural misconduct, which repeat and recur over time.​

Finding 1: There are a limited number of repeat behavioural patterns​

Finding 2: Behaviours are jurisdictionally and geographically neutral​

Finding 3: The same behaviours occur in different asset classes​

Finding 4: Behaviours adapt to new technologies and market structures​

The patterns were also found to be “strikingly similar” to those found by the US Senate Committee in 1934, in its investigation into the causes of the 1929 Wall Street Crash — suggesting that malpractice has changed little.

As we adapt to new ways of working here’s a reminder to leave you with The Financial Conduct Authority warned City workers that it “will clamp down with all relevant force” on instances of misconduct during the pandemic, in a report published on 7 April. ​

Christopher Woolard, the FCA’s interim chief, has said he sees the Covid-19 lockdown as “the first real test” of the Senior Managers’ Regime.

After all it’s so much more difficult to know what someone is doing when they are at the end of the telephone rather than in the office.

If you’d like to learn a little more take a look at our Market Abuse course where we look at more cases and try to define the market abuse landscape.

About this author

Matt Fotherby

Financial Markets, Compliance & Regulations

Matt Fotherby

Matt is our Founder and a passionate trainer.

His interest in education stems from his 10 years as an Account Executive looking after Global Hedge Fund and Asset Management clients. This led Matt to join the coveted Financial Markets Education team at UBS, a unique in-house education team that specialised in running a curriculum of financial market and product classes for both UBS employees and clients. Matt was responsible for building out the client offering; managing programs, creating content and teaching courses.

As financial markets entered a significant period of regulatory change Matt pivoted to take his client experience and market knowledge to focus on Regulations and Compliance topics.

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