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FSA fines Swift Trade £8m for market abuse of ‘layering’

Online brokerage Swift Trade is appealing against FSA fine

A business controlled by Canadian share trader Peter Beck is to be fined £8m by the Financial Services Authority.

The regulator found that Swift Trade stood at the centre of a global web of equity traders engaged in an elaborate market abuse operation.

The FSA confirmed that it had decided to fine Swift Trade, a now dissolved online brokerage catering for day traders, for “systematically and deliberately” manipulating the share price of listed companies, including FTSE 350 firms, for short moments of time throughout 2007.

The FSA said profits from the manipulations were in excess of £1.75m, though it had not been possible to reach an exact figure. Swift Trade, which has transferred assets to a parent company and was dissolved last December, is appealing against the fine. Since May it has fought to keep the regulator’s ruling confidential – a battle that it has now lost.

Should the fine be upheld on appeal, the FSA is expected to then pursue a claim for the money on Swift Trade’s parent group. It is only the second time the regulator has sought to make public its decision before the appeal process has been exhausted.

The market abuse involved a trading scam known as “layering”. This involves traders entering relatively large orders to buy or to sell shares with the London Stock Exchange without ever intending to follow through on those orders. This gives a false impression of demand for a stock, prompting a move in the price – upwards in the case of an apparent abundance of big buyers; downwards when there appear to be lots of heavy sellers.

The bluff orders were deleted within seconds, but not before a small shift in price had allowed Swift Trade to strike, buying or selling equity derivatives at prices that would not otherwise have been possible.

Suspicious trading patterns were eventually picked up by the LSE and passed on to the FSA for investigation. However, Swift Trade had been able to repeat this type of market abuse operation for so long, in part, because it is said to have had a network of more than 50 customers around the world which in turn engaged more than 3,000 traders.

Simon Morris, of law firm CMS Cameron McKenna, said: “Fining a fringe player an enormous amount for market abuse is sending out another powerful message that sleazy malpractices are not tolerated in the City.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds