Financial Regulatory Forum

UK’s FSA warns on stock price/liquidity misleading

September 2, 2009

fsa_logo   LONDON, Sept 1 (Reuters) – The UK market regulator, FSA, said on Tuesday it will fine or suspend market operators involved in  manipulation practices known as “spoofing” and “layering.”
   The warning follows a 35,000 pound ($57,130) fine imposed last year by the London Stock Exchange on an unidentified firm.
   Spoofing and layering involve putting apparent trades on share order books to create a misleading impression of the stock price or liquidity. They both constitute potential market abuse, an LSE spokesman told Reuters.
   Spoofing involves using systems’ “direct market access,” or DMA, which can offer investors like hedge funds, fund managers and private investors — whether regulated by the FSA or not — access to a stock order book. In a spoofing case, a trader gives the impression to put in a buy or sell order it does not want to complete to drive down the stock’s price.
   Most investment banks offer DMA solutions to some of their clients, the LSE spokesman said.
   Layering consists of submitting multiple orders, typically on one single stock, to create the impression the share is highly liquid.
    The LSE already warned on the practices last year, the spokesman said.
   A spokeswoman for the FSA told Reuters: “We are not just saying: ‘We are watching you.’ We are warning to stop and if they do not, we will take action,”
   Prosecution would involve fines or suspensions, she said.
   “Some market participants may not be sure that it (spoofing or layering) is wrong. This is to clarify that it is,” she said.
 ($1=.6126 Pound) (Reporting by Cecilia Valente; Editing by Dan Grebler)
 ((cecilia.valente@thomsonreuters.com; +44 (0)20 75429786; Reuters Messaging: cecilia.valente.thomsonreuters.com@reuters.net)) Keywords: FSA WARNING
  
Tuesday, 01 September 2009 22:26:25RTRS [nL1300032 ] {C}ENDS

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