The FCA has banned and fined a bond trader £662,700 for attempting to manipulate the Bank of England’s quantitative easing trading.
Mark Stevenson intended to sell his holding in a UK Government gilt, worth £1.2bn, to the Bank of England in October 2011 for an artificially high price during QE operations that day.
His unusual trading was reported within 40 minutes and the Bank decided not to buy that gilt as part of QE. Had it not done so, any losses would have been borne by the Government.
This is the first enforcement action for attempted or actual manipulation of the gilt market.
FCA director of enforcement Tracey McDermott says: “Stevenson’s abuse took advantage of a policy designed to boost the economy with no regard for the potential consequences for other market participants and, ultimately, for UK taxpayers. He has paid a heavy price for his actions.
“Fair dealing is at the heart of market integrity. This case sends a clear message about how seriously the FCA views attempts to manipulate the market.”
The FCA says there is no evidence Stevenson colluded with traders in other banks.
Between 1 July and 5 October 2011 Stevenson gradually increased his holding of the relevant gilt, as he believed its value could rise if the Bank decided to hold another round of QE.
On 6 October the Bank announced that QE would be reintroduced on 10 October. On 10 October Stevenson significantly increased his holding of the relevant gilt with the intention of raising its price.
Others in the market highlighted the unusual activity to the Bank and the Bank took the unprecedented step of announcing that it would not purchase the affected gilt, following significant changes in its yield that day.
Had Stevenson’s offer to trade with the Bank been accepted, he would have accounted for 70 per cent of the £1.7bn allocated to QE on that day.
If the Bank had accepted his offer any subsequent losses it made would have been indemnified by the Government – at taxpayers’ expense.