UK regulator the Financial Services Authority (FSA) will fine Canada-based Swift Trade Â£8 million for a “particularly serious case of market abuse”, subject to the outcome of an appeal.
Swift Trade, a retail day trading firm that ceased operations last year, and its CEO Peter Beck have referred the FSA's decision to the Upper Tribunal following an unsuccessful attempt to extend an injunction preventing the regulator from making its decision public.
The UK's High Court rejected Swift Trade’s application on 26 August, having granted an initial injunction on 9 June, which elapsed on 16 August. The Upper Tribunal also rejected a separate injunction request made on 2 August to prohibit publication of the FSA’s decision notice.
The Upper Tribunal is an independent judicial body established by the Tribunals, Courts and Enforcement Act 2007. The Tax and Chancery Chamber, which is the part of the Upper Tribunal, hears references arising from certain decisions and supervisory notices issued by the FSA.
According to the FSA, Swift Trade is guilty of systematically and deliberately engaging in layering, a form of market manipulation, on the London Stock Exchange between 1 January 2007 and 4 January 2008.
During this time, Swift Trade is believed to have been responsible for small price movements in a wide range of FTSE 100 and FTSE 250 shares that allowed it to make substantial profits. In the FSA's opinion, Swift Trade did this by layering, i.e. the practice of entering large orders on one side of the order book, before trading on the opposite side of the order book after the share price had been altered. The orders are then cancelled once a shift in the supply and demand balance in a stock has been achieved.
The FSA said it was not possible to measure the profits Swift Trade made from layering exactly, but asserted that they were in excess of Â£1.75 million, spanning tens of thousands of trades across different jurisdictions globally.
The UK watchdog added that in March 2007, Swift Trade became of aware of concerns related to its trading activity that were raised by the LSE. Although Swift Trade said it would add more robust controls to its trading, the firm actually took steps to avoid regulatory scrutiny by changing its direct market access provider. Swift Trade was dissolved under Canadian law last December and its assets transferred to BRMS Holdings.
“The FSA remains committed to tackling abuse of the UK markets – wherever it originates. Interference with the price formation process threatens the integrity of those markets,” said Tracey McDermott, acting FSA director of enforcement and financial crime. “Market participants who offer direct market access should be aware of the risks that such access may be abused and take proactive steps to prevent it.”