FSA Bars Financial Firms, Individuals from Market Manipulation

Jack Humphrey, Regulatory journalist
September 06, 2011 /

The Financial Services Authority (FSA) has prevented a number of companies and individuals from manipulating the market in UK-listed shares and frozen their assets in an interim High Court injunction.

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, which is registered in the Seychelles, as well as 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 FSA claimed that Da Vinci Invest Ltd and Da Vinci Invest PTE Ltd were trading on their own accounts.
The FSA believed that these companies and individuals have committed market abuse by engaging in a form of manipulative trading known as “layering”, which created a misleading impression as to the supply and demand of shares. The companies and individuals traded across a number of UK trading platforms and the FSA estimates that they made over £1 million gross profit from this activity.

A multilateral trading facility on which one of the companies had traded first revealed the conduct that prompted the FSA to take action.

Under the Financial Services and Markets Act 2000 the FSA is empowered to seek injunctions against persons who have engaged in market abuse.

The court order does not affect assets invested in funds managed by these companies or any associated companies.

The conduct took place from August 2010 to July 2011, placing large orders for shares which they had no genuine intention of allowing to trade, which in effect moved 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, a service offered by some stockbrokers that enables investors to place orders directly on the exchange or platform they wish to trade on, without a stockbroker considering the orders first.

They traded both on platforms run by multilateral trading facilities and on the London Stock Exchange itself.

The FSA warned market participants who offer direct market access to be aware of the risks that such access may be abused and take proactive steps to prevent it.

The FSA previously 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.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said: “This injunction shows that the FSA will take swift and decisive action to protect the integrity of UK markets, wherever those seeking to abuse them are based. These companies engaged in repeated cross-platform market manipulation, which the FSA will not tolerate.”

The FSA’s investigation, and the associated court case, will continue.


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