UK’s FSA acts against suspected market manipulation

The UK regulator, the Financial Services Authority (FSA) has obtained an interim High Court injunction preventing a number of companies and individuals from manipulating the market in UK-listed shares. The injunction also freezes the assets of the companies.

The FSA has issued proceedings against Da Vinci Invest Ltd, a UK-registered but Swiss-based fund manager, a related Singapore-based company Da Vinci Invest PTE Ltd, and Mineworld Ltd, registered in the Seychelles. The order also targets Szabolcs Banya, Tamas Pornye and Gyorgi Brad (all of whom are resident in Switzerland and/or Hungary) who traded on behalf of those companies.

The conduct that led to the FSA action was brought to its attention by a multilateral trading facility on which one of the companies had traded. The FSA obtained an interim injunction freezing the assets of the companies on 12 July, and a further order continuing the freezing injunction and restraining the market abuse on 31 August.

In a statement, the FSA said the companies and individuals may have committed market abuse by engaging in a form of manipulative trading known as “layering”, or creating a misleading impression as to the supply and demand of shares. The trades occurred across a number of UK trading platforms, making an estimated £1m gross profit between August 2010 and July 2011. The Authority believes Da Vinci Invest Ltd and Da Vinci Invest PTE Ltd were trading on their own accounts.

The manipulation was done by placing large orders for shares they had no genuine intention of allowing to trade. These misleading orders had the effect of moving the share price up and down as the market reacted to the perceived change in supply or demand of the shares. The traders would then take advantage of the price changes by repeatedly buying shares (when the share price had been manipulated downwards) and selling them (when the share price had been manipulated upwards). At the same time, they would delete the initial orders which had manipulated the share price.

The companies traded through Direct Market Access (DMA) accounts. DMA is offered by some stockbrokers, and enables investors to place orders directly on the exchange or platform they wish to trade on, without a stockbroker considering the orders first. The named firms traded on platforms run by multilateral trading facilities and on the London Stock Exchange.

The regulator said market participants who offer direct market access should be aware of the risk that such access may be abused and take proactive steps to prevent it. Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said the injunction shows the FSA “will take swift and decisive action to protect the integrity of UK markets, wherever those seeking to abuse them are based”. The companies engaged in repeated cross-platform market manipulation, which the FSA will not tolerate, she added.

The court order does not affect assets invested in funds managed by these companies or any associated companies. The FSA’s investigation, and the associated court case, will continue.

 

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