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Investor fined £6m for manipulating structured product

The FSA has fined a Dubai-based investor £6.1m in the regulator’s biggest-ever fine on an individual for market abuse.

On October 18, 2010, Rameshkumar Goenka artificially inflated the closing price of Reliance Industries securities by arranging a series of substantial and carefully timed orders to be placed in the final seconds of the London Stock Exchange’s closing auction.

The orders were placed and the trades executed with the intention of increasing the closing price of the Reliance securities above a certain level.

The timing of the substantial orders was intended to leave market participants without enough time to respond before the closing price was determined.

Goenka held an over-the-counter structured product which matured on October 18 and where the payout depended on the closing price of Reliance securities that day. By increasing the closing price, Goenka avoided a loss of £1.9m under the product terms.

The FSA says Goenka had planned to engage in similar behaviour in relation to a separate structured product in April 2010, but on that occasion no actual trading took place due to events beyond his control.

The fine comprises a penalty of about £4m and restitution of about £2m to reimburse the bank which over- paid Goenka as a result of his market abuse.

FSA acting director of enforcement and financial crime Tracey McDermott says: “When Goenka saw that the structured product was not going to produce the desired result, he manipulated the market to avoid a substantial loss. Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand.”

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  1. What if he won’t pay?

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