The FSA is investigating what appears to have been a “trash and cash” operation relating to HBOS shares: this is where someone (perhaps a bank trader or a hedge fund) for a fee borrows shares, say in HBOS, promising to return them on a fixed date; sells them, say at £1 each; then does something, for instance going into pubs in the City telling everyone that HBOS is about to do a Northern Rock, to mislead others into selling their shares; then finally, when the price goes down, buying them back, say at 90 pence a piece.
It’s market abuse, by means of a manipulative device; or you can simply call it market manipulation. Here’s a good guide to the civil regulatory regime and related criminal provisions, by Morgan Lewis solicitors.
And here’s section 397(3) of the Financial Services and Markets Act 2000, which makes this kind of market manipulation an offence. You’ll see from subsection (8) that the maximum sentence is seven years imprisonment or an unlimited fine.
To quote the elegant Morgan Lewis guide:
“The FSA has not issued or endorsed any guidance in respect of the criminal offence of insider dealing, for example, and has not issued any statements to the effect that compliance with the civil regime will result in a person not committing an offence under the criminal law. Similarly, the FSA has not issued guidance in respect of the criminal offences for market manipulation/misleading the market. For this reason, the position is somewhat unsatisfactory.”
This again highlights the fact that the FSA has not yet properly established itself as an investigatory, controlling or regulating body. In many people’s eyes it is merely an inconvenient (and often political) hurdle.
To gain any credibility at all the FSA must be much more pro-active. Its customary sluggish and clumsy responses do nothing to impress. It is largely passive.
It’s all very well incorporating reams of legislation. What actually counts is the policing. That is something which the current political regime has failed to grasp, but the city boys are much sharper than that.