The FCAs Decision Notices against three bond traders for alleged market manipulation
09 December 2022
On 7 December 2022, the Financial Conduct Authority (FCA) published Decision Notices in relation to three bond traders for alleged market manipulation involving placement of large orders on one side of the order book on an exchange to assist in executing small orders for the same instrument on the other side of the book, and then cancelling the large orders before execution.
The Decision Notices given to Diego Urra, Jorge Lopez Gonzalez and Poojan Sheth include proposed prohibition orders banning the three from performing any functions relating to regulated activity and imposing proposed fines of £395,000 on Mr Urra and £100,000 each on Mr Lopez Gonzalez and Mr Sheth.
The three traders have referred the Decision Notices to the Upper Tribunal where they and the FCA will each present their cases.1 The findings outlined in the Decision Notices reflect the FCA's belief as to what occurred and how it considers their behaviour should be characterised. The proposed action in the Decision Notices will have no effect pending the determination of the case by the Upper Tribunal.
The Decision Notice against Mr. Urra alleges that he used an abusive trading strategy on the EUREX Exchange in relation to BTP Futures by placing a large order on one side of the order book for the purpose of creating the impression of increased supply or demand, and with the objective of assisting the execution of a smaller genuine order he wished to trade on the opposite side of the order book.
For example, if he wanted to buy bond futures, as well as placing a bid for those futures, he would place a large order to sell BTP futures. The purpose of the latter was to create the impression that there was additional supply in the market with the aim of encouraging other market participants to sell (thereby increasing the chances of his buy order being executed). Once the smaller genuine buy order had been executed, he would cancel the large sell order.This same pattern of alleged conduct through the placement of large orders on the opposite side of the book was also carried out by Mr Urra in concert with the other two traders.
The only purpose of the large orders was said to be to assist the execution of the smaller genuine orders, and the large orders were not placed as Iceberg Orders. The alleged trading strategy was such that it was unlikely the large misleading orders would themselves trade; notably, the FCA claims the orders were placed away from the touch (that is, below the highest price to buy and above the lowest price to sell) and were quickly cancelled after the genuine orders had fully, or at least 50%, traded.
The FCA characterised this market manipulation as serious and directly undermining the integrity of the market because other market participants would likely have altered their trading strategies due to the false and misleading signals given by the large orders.
Each of the Decision Notices contains a summary of the key representations made by the respective individuals, and the Authority’s conclusions in respect of them. The cases will be heard in the Upper Tribunal.
Authors: David Capps and Adam Jamieson
- Each of the three traders has referred their Decision Notice to the Upper Tribunal to determine: (a) in relation to the FCA’s decision to impose a financial penalty, what (if any) is the appropriate action for the FCA to take, and remit the matter to the FCA with such directions as the Tribunal considers appropriate; and (b) in relation to the prohibition order, whether to dismiss the reference or remit it to the FCA with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal. Therefore, the findings outlined in this Decision Notice reflect the FCA’s belief as to what occurred and how it considers their behaviour should be characterised. The proposed action outlined in the Decision Notice will have no effect pending the determination of the case by the Tribunal. The Tribunal’s decision will be made public on its website.
