personal finance

Suspect share trades preceded one in 10 UK takeovers last year

Suspicious trades that can indicate insider trading occurred before 10 per cent of takeover announcements in the UK in 2018, the financial regulator has revealed.

That was the lowest level since at least 2006 and a marked drop from the previous year, when suspicious trades occurred before 22 per cent of takeover announcements, which was the highest level since 2010.

The Financial Conduct Authority also levied higher fines more widely and opened more investigations than in the preceding 12 months, its annual report shows.

The FCA has meted out £227m fines in the 2018-2019 financial year — compared with £70m over the preceding 12 months — and has more cases on its books than ever before.

It had 650 open investigations as of April 2019, compared with 496 a year earlier, the report published on Tuesday said.

Andrew Bailey, chief executive of the FCA, said: “This year we have taken steps to combat the risks of market abuse, including opening 484 preliminary market abuse investigations and a programme of visits to improve monitoring in fixed income, commodity and derivative markets.”

Mr Bailey, who is one of the frontrunners to take over from Mark Carney as the governor of the Bank of England next year, was paid a total package of £592,000 including pension.

Last year’s market-cleanliness figures led to criticism that the FCA was not doing enough to counter market abuse. So it has started scrutinising unusual share movements before takeover announcements by companies including FirstGroup and Virgin Money. It also began its first big insider-trading trial since 2016, which eventually led to the conviction of a former UBS compliance officer and her day-trader friend last month following a retrial.

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While the statistics will be a boon to the FCA — in 2009 unusual trading preceded 30 per cent of takeover announcements — the FCA cautioned that the traditional market-cleanliness metric of measuring large movements in share prices ahead of public announcements had limited use in trying to determine how prone a market is to abuse.

The watchdog has developed a new metric to try to work out whether there is unusual trading, measuring abnormal volumes of trades before unexpected announcements.

In 2018, 68 out of 1,070 such announcements, or 6.4 per cent, were preceded by a spike in trading volumes, the FCA revealed.

Spikes in both share prices and how many shares are traded ahead of public announcements are a red flag for regulators because they can be a sign — although not proof — of insider trading.

The annual report details other bright spots, including cracking down on high-cost credit and sustained favourable feedback from the firms it regulates. But the FCA, which presides over nearly 60,000 firms, has also come under sustained criticism for not reacting quickly enough to looming scandals, including the £236m failure of London Capital & Finance, which pushed unregulated mini bonds on retail customers.

Charles Randell, the FCA’s chairman, said that such failures would overshadow the debate on the future of regulation as the UK leaves the EU, potentially having more leeway to write its own rules.

He said one question was “whether UK regulation should permit ordinary consumers to be exposed to high risk, often unregulated, products. It’s clear that risk warnings alone are not enough to provide adequate levels of protection for some of these products.”

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Lawyers also expressed concern over the number of new cases the FCA has opened this year, without resolving existing ones.

David Rundle, a counsel at WilmerHale, the law firm, said: “In these conditions it is hard to imagine that the timeframe for a contested enforcement action will not become markedly more protracted, unless the FCA increases its resources appropriately.”


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