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FSA freezes firms' assets

Sep 01 2011 15:00 Reuters

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London - The Financial Services Authority has frozen the assets of firms it says manipulated share prices on the London Stock Exchange and other trading platforms, the latest sign of the regulator's more aggressive approach to suspected abuses.

"These companies engaged in repeated cross-platform market manipulation, which the FSA will not tolerate," Tracey McDermott, the regulator's acting director of enforcement and financial crime said in a statement on Thursday.

The FSA said it has obtained an interim high court injunction preventing a number of companies from manipulating shares and accessing assets.

The firms facing proceedings are Da Vinci Invest, a UK-registered but Swiss-based fund manager, a related Singapore-based company Da Vinci Invest PTE, and Mineworld, which is registered in the Seychelles, as well as traders Szabolcs Banya, Tamas Pornye and Gyorgi Brad.

"The companies and individuals traded across a number of UK trading platforms and the FSA estimates that they made over one million gross profit from this activity," the watchdog said.

The FSA said manipulation spanned a year to July 2011 and was brought to its attention by one of the trading platforms being used.

The companies traded through direct market access accounts, which allow investors to trade directly on a platform without screening by stockbrokers used to channel the orders.

It was the second day in a row the FSA has taken action to crack down on so-called layering, which refers to traders entering multiple orders which are cancelled almost immediately, creating a misleading impression as to the supply and demand for the shares.

Genuine orders are then placed to exploit the shift in prices engineered by layering.

On Wednesday the FSA said it was fining now-defunct Swift Trade £8m.

The move is part of crackdown on market abuse on both sides of the Atlantic, accompanied by higher scrutiny of high frequency trading firms favoured by day traders who dart in and out of markets at ultra high speeds to exploit tiny price differences.

The FSA resorted to its first such injunction only last year against Scottish day trader Barnett Alexander, who this year had to pay £1.3m in fines and other penalties.

The FSA said on Thursday it feared that without an injunction, a tool given to it a decade ago, there was a risk that assets which could be used to pay fines would disappear.

"We will continue to use injunctions more around market abuse cases," an FSA spokesperson said.

Regulators believe that layering - along with "spoofing" or fake interest in stocks - could have contributed to the "flash crash" that sent Wall Street into temporary freefall last year.

The European Securities and Markets Authority is studying tougher rules on layering, spoofing and direct market access which are seen as key risks from high frequency trading.

london stock exchange  |  fraud  |  businesses



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