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FCA bans & fines trader for QE gilt price manipulation

FCA bans & fines trader for QE gilt price manipulation

The Financial Conduct Authority (FCA) had fined a bond trader with for gilt price manipulation.

Mark Stevenson, who has also been banned by the watchdog, was fined £662,700 for a trade related to 10 October 2011.

It is the first time enforcement action has been taken for manipulation of the gilt market.  

The FCA said Stevenson, a 30-year veteran of the gilt market, intended to sell his holding, worth £1.2 billion, to the Bank of England for an artificially high price during quantitative easing (QE) operations that day.

His unusual trading was reported within 40 minutes and the BoE decided not to buy that gilt as part of QE.

FCA  director of enforcement Tracy McDermott (pictured), said: '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 tax payers. 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 outlined the following chain of events: 

* Between 1 July and 5 October 2011, Stevenson gradually increased his holding of the relevant gilt, as he thought its value could rise if the Bank decided to hold another round of QE

* Thursday 6 October 2011, the Bank announced that QE would be reintroduced on 10 October 2011

* Between 09:00 and 14:30 on 10 October Stevenson significantly increased his holding of the relevant gilt – which accounted for 92% of the gilt’s turnover that day

* Given his significant market experience he was fully aware of the impact this would have – and traded with the express intention of increasing the gilt’s price.

* By 09:39 others in the market had highlighted this unusual activity to the Bank, with one trader noting that this appeared to be a deliberate attempt at 'pushing the price higher in order to sell… later in the day'. 

* The price and yield of the bond significantly outperformed similar gilts on 10 October 2011 as a direct result of Stevenson’s trading. Stevenson stopped buying the bond at 14:30, whilst QE was underway.

* At 14:56, the Bank took the unprecedented step of announcing that it would not purchase the affected gilt, following significant changes in its yield that day.

* By 15:30 the gilt’s performance had completely reversed, and by the end of the day its price was back in line with comparable bonds.

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