FCA fines bond trader £60,000 for market abuse

The Financial Conduct Authority (FCA) has imposed on Paul Walter, a former Bank of America Merrill Lynch International Limited (BAML) bond trader, a financial penalty of £60,090 for engaging in market abuse.

Following an investigation, the FCA found that Mr Walter, an experienced trader, engaged in market abuse by creating a false and misleading impression as to supply and demand in the market for Dutch State Loans (DSL) on 12 occasions in July and August 2014.

Mark Steward, Executive Director of Enforcement and Market Oversight, said:

“Market manipulation undermines market integrity and confidence.  The FCA will be vigilant in detecting abusive practices and will take robust action to protect issuers and participants from all over the world from the harm caused by such abuse.”

On 11 occasions, Mr Walter entered a series of quotes that became the best bids on BrokerTec, an electronic trading platform, giving the impression that he was a buyer in a DSL. Other market participants who were tracking his quotes with algorithms followed him in response and raised their bids.  Mr Walter then sold to those other participants and cancelled his own quote.  Despite placing quotes that suggested he wanted to buy, he actually sold the DSL. On one further occasion, Mr Walter did the opposite by attracting market participants to follow him with the result he purchased the DSL from the market participants who had recently lowered their offer price and then cancelled his own quote.

While the FCA did not find Mr Walter knew his conduct amounted to market abuse, the FCA considered he was negligent in not realising this.

Market participants were affected by Mr Walter’s trading because his trading strategy manipulated their prices and led to them either buying or selling DSLs at worse prices than they could otherwise have done.

Mr Walter’s abusive trading resulted in a profit of €22,000 to his trading book.

Mr Walter’s behaviour constituted market abuse within the meaning of section 118(5) of the Act in that it gave a false and misleading impression as to the price and supply or demand of the DSLs and it also secured the price at an artificial level.

The FCA has therefore imposed a £60,090 financial penalty on Mr Walters.