The FSA is launching an inquiry into claims that traders spreading malicious rumours have been a catalyst in the downturn of city share prices. Traders have been said to be benefiting from dealing off the back of these false rumours, something the FSA is quick to make clear they will not tolerate.

One man's loss is inevitably another's gain. As UK lenders have been hit by the current crisis,many are having to withdraw products,terminate bank to bank lending and share prices are falling rapidly-something certain traders are keen to take full advantage of. While base rates are dropping, banks are having to put up their prices as a direct result of this. Last week this came to a head when Halifax Bank of Scotland suffered a sharp fall in share prices due to claims spread via email of funding problems. The HBOS have vehemently denied this and have stated that this is mere innuendo and completely untrue.

It has been claimed that similar talk in America contributed to the Bear Stearns crisis, as lenders feared the bank was cash short and demanded their money be immediately repaid. The FSA are keen to avert any similar crisis happening here in the UK and have warned that anyone found to be spreading false rumours will be pursued. Many traders are questioning whether this warning of a “pursuit” is going to be enough to stop traders who could stand to gain high sums of many from dealing in this way.

For a start, finding these rogue traders and proving that they have been benefiting from slanderous gossip could be a near impossible task . The city has always been a hotbed of conspiratorial whispers, so deciphering which are potentially dangerous will be extremely difficult. Sally Dewar,
managing director, wholesale and institutional markets, said:
"There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling. We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them.
"We remind market participants of the need to take extra care, in this market climate, to adhere to the market code of conduct."
 

However, as yet the FSA has not made clear the consequences rumour mongers can expect. Many feel that until clear action is taken with a fitting punishment, some traders are bound to continue to deal in this way.

Lucy Trueick