UK regulator fines bond trader for market abuse

Gavel law booksFormer Bank of America Merrill Lynch bond trader Paul Walter has been fined £60,090 (€67,795) by the UK’s Financial Conduct Authority (FCA) for market abuse.

Following an investigation, the FCA found that 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 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, 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 loan.

Other market participants who were tracking his quotes with algorithms followed him in response and raised their bids.

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 loan.

On one further occasion, Walter did the opposite by attracting market participants to follow him with the result he purchased the loan from the market participants who had recently lowered their offer price and then cancelled his own quote. 

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

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

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

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