FSA censures bank director and vice president

FSA censures bank director and vice president


The FSA has censured a director and a vice president at Dresdner Kleinwort, which is now part of Commerzbank, for committing market abuse in relation to a new issue of Barclays’ bonds.  

Darren Morton and Christopher Parry were portfolio managers with Dresdner’s Structured Investment Vehicle, K2 which had $65 million of a Barclays’ floating rate note issue (FRNs) – bonds with a variable coupon – in its portfolio. 

On the morning of 15 March 2007, Mr Morton was given inside information about a potential new issue of Barclays FRNs, on more favourable terms than the previous issue, which he shared with Mr Parry.

Acting on this inside information, Mr Morton and Mr Parry then agreed to sell K2’s entire holding of the previous issue to two separate counterparties.

Both counterparties to the trades were unaware of the proposed new issue of FRNs. Later that day, a new issue of FRNs was announced and the counterparties made mark to market losses of $66,000 and independently complained to K2 about the circumstances of the trades.

The FSA decided that Mr Morton and Mr Parry committed market abuse because they sold the FRNs based on inside information about the new issue.

Although Mr Morton and Mr Parry told the regulator that they believed they were acting in accordance with market practice when selling the FRNs, the FSA argued that this belief was not “reasonable.”
Margaret Cole, FSA director of enforcement said: “Insider dealing is cheating, whatever market it is in. It was argued that practices in the debt market meant it was always acceptable to trade after being “sounded out” on a new issue. This is not the case. Market participants must always be alert to the possibility that inside information is being passed, and where it is they must not trade.

The City watchdog added that future offenders will be likely to face significantly more severe sanctions, as, in determining the right action to take, it was taken into account that the pair did not make a personal profit from the trades.

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