Thursday, November 10, 2011

Reflecting market or blinding it?

FSA hits Dubai-based investor with £4m fine [Well, actually, 6million pounds including the disgorgement order.]
Rameshkumar Goenka manipulated the closing share price of Reliance on the London Stock Exchange in 2010, as part of a ruse to avoid losing nearly £2m.

The 66-year-old trader had acquired an investment product from an unnamed European bank that paid out if Reliance's shares reached a pre-determined level by a certain date. But when the investment looked as if it would go sour, Goenka swung into action.

According to the FSA "[he] had arranged for a pre-planned series of substantial and carefully timed orders to be placed in the final seconds of the LSE's closing auction.

The FSA ordered him to remit £2m to the bank and fined him a further £4m. The fine would have been even higher, £7.7m, had Goenke not settled early and benefited from a 30% discount.

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: "Goenka's structured product was an investment that would have made him a considerable profit had it been successful. When he saw that it was not going to produce the desired result, Goenka manipulated the market to avoid a substantial loss.

"The impact of such behaviour goes far beyond one counterparty. Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand."

As usual, there's more to this story and you should consider at least reading it on the link above.

But Guambat remains impressed that someone some place is sticking with the rather quaint idea that markets are what you trade and not how you trade. Guambat is quite certain that no one has told that to the black boxes, algorithms and other creatures inhabiting the deep seas of the closing and opening half hours of the global markets. Where does market manipulation begin and market regulation end if not in efforts to make a gain or avoid a loss? And does that matter to sharks?

Guambat is not inclined very much to swimming in those channels any longer.

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