The UK Financial Conduct Authority (FCA) has taken disciplinary action against a trader involved in a practice known as “wash trading”.
The FCA has fined Adrian Geoffrey Horn, a former market making trader at Stifel Nicolaus Europe Limited, £52,500 for market abuse and prohibited him from performing any functions in relation to regulated activity.
Following an investigation, the regulator determined that Mr Horn engaged in market abuse by executing trades with himself in the share McKay Securities Plc. The ‘wash trading’ involved Mr Horn intentionally placing buy orders in McKay shares that traded with his existing sell orders (and vice versa). In total, Mr Horn executed 129 wash trades during the period 18 July 2018 to 22 May 2019. The trader entered orders into the market in such a way as to try and avoid anyone detecting that he was wash trading.
‘Wash trading’ means trading where there is no change in ownership or risk and can create a false or misleading impression to other market participants as to the price, demand or supply of a security.
McKay was a corporate client of Stifel. Mr Horn’s motive for executing the wash trades was to ensure that a minimum number of shares were traded in McKay each day, which he believed was a requirement to ensure that McKay remained in the FTSE All Share Index. Mr Horn thought that by assisting McKay to remain in the FTSE All Share Index he would benefit the relationship between Stifel and its client.
Through his wash trading Mr Horn gave false and misleading signals to the market as to demand for and supply of McKay shares. His actions resulted in other market participants seeing what they believed to be legitimate trades in McKay occurring. In addition, the wash trades artificially inflated end of day trading volumes reported to the market.
Mr Horn was aware of the risk that his actions might constitute market manipulation but recklessly went ahead with those actions anyway, the FCA says.
The regulator notes that the trader demonstrated a high level of cooperation during the investigation. In particular, he made significant admissions during an early interview with the FCA. As a result, Mr Horn’s financial penalty was reduced by 25%. In addition, Mr Horn received a further 30% settlement discount.