Treasury select committee member Mark Garnier has attacked the regulator’s oversight of financial markets, alleging it is an open secret that equity closing prices are manipulated.
Garnier, a former investment banker and hedge fund manager, made the comments yesterday in a committee hearing with FCA head of markets infrastructure and policy David Bailey that focused on the rigging of financial benchmarks.
He said: “This is something that is very widely spoken about among equity traders across the world. This is not a minor thing. This is a big deal and I’m amazed [the FCA] has not thought about it. It might be outside the remit of what you necessarily look at, but if nothing else it is market abuse surely.
“It was common knowledge people were trying to manipulate closing prices both in the UK and US markets. I spoke to a couple of sales traders this morning to find out if my info was out of date and they said: ‘Oh yes, it goes on all the time’, as if it is a well known secret.”
Committee chair Andrew Tyrie added: “I think we are all amazed that this equity closing price [issue] doesn’t seem to have been looked at at all.”
Bailey was unable to answer questions about whether the FCA, established last year, had carried out any investigations relating to the manipulation of equity closing prices.
Shares prices are set based on the prices in an auction run by the venue on which they are traded. By lodging artificial bids investors can manufacture a benefit on other positions, for example derivatives based on that equity price. The trading venue is required to monitor the auctions and has a duty to report any suspicions about rigging.
Such rigging can also be investigated under the FCA’s market abuse powers.
The last time a UK regulator took action over this issue was in 2011 when the now defunct Financial Services Authority fined Rameshkumar Goenka, a Dubai based private investor, £6m for manipulating the closing price of Reliance Industries.
The FCA declined to comment.