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market abuse and the new tough fsa October 8, 2009

Posted by Bradley in : financial regulation , trackback

The FSA yesterday censured two Dresdner traders (Darren Morton and Christopher Parry) who sold Barclays frns with inside information that Barclays was about to issue new frns on better terms (having been sounded out about the new issue). The traders said they believed that their acts were consistent with market practice, but the FSA said that their belief was “not reasonable” and that they were “cheating”. The decision to censure in this case reflects in part that the traders made no personal profit on the trades. But the FSA suggests that it may act more forcefully in such cases in the future.

The Telegraph suggests that the decision to censure the traders actions resulted from the moderating influence of the FSA’s Regulatory Decisions Committee, and the Independent suggests others who are subjected to enforcement action in future may decide to take their cases to the committee rather than settling with the FSA. CityWire’s Morning Line calls this:

a new low – an almost laughable riposte to Hector Sants’ warning in March this year that the City should be ‘very afraid’ of the regulator.

The Times comments:

Not only is it very embarrassing for the FSA, it sends precisely the wrong message about the City’s ethics and regulation at precisely the wrong time. With the City under attack from all sides, and the FSA threatened with extinction by the Tories, the last thing they need is to provide more ammunition to those who say they learnt nothing from the financial crisis and are determined to return to business as usual.

This case illustrates something that seems to be being lost in all of the debates over financial regulation – setting up regulators who can be effective involves complex questions of institutional design and about the people who are made responsible for running the system.

(Meanwhile, the SEC, also under some threat because of past regulatory failures, is aggressively pursuing its case against Mark Cuban, appealing to the 5th Circuit).

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