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The City’s regulator has threatened to impose unlimited fines on investors that breach its new rules on betting against UK bank shares amid a flurry of late disclosures by hedge funds.
The warning came yesterday as Gordon Brown promised new permanent rules to curb short-selling once the Financial Services Authority (FSA) ban expires in January. The Prime Minister said: “We’ll be reviewing over the next four months and I think you will find new rules for the future.”
Such a move could further threaten the hedge funds industry, which has grown explosively in London. The FSA last week introduced measures to tackle short selling of UK bank shares, fearing falling prices would undermine the financial system.
It ruled that any short position greater than 0.25 per cent of a market value of any 34 named financial stocks must be disclosed by 3.30pm on Tuesday this week. A number of other companies have since approached the regulator asking to be included on the list.
Daily Telegraph – Lawyers are being galvanised on behalf of a raft of hedge funds which claim the financial watchdog has illegitimately extended its powers and caused "wide-spread capital destruction."
One said: "The FSA’s remit is to maintain orderly markets – the markets were working fine, only the banks were going bust. With one swoop, the regulators have wiped out perfectly legitimate businesses and have cost some funds millions. They have gone for the big political hit without a thought for the damage they are wreaking. There may be unintended consequences but it’s outrageous and illegal."
The backlash follows a week in which the multi-billion pound hedge fund industry has been plunged into crisis. Prime brokers in London estimated that 35 per cent of European hedge funds were organising emergency measures to avoid closing funds as a ban on short-selling has hamstrung managers at a time when they need flexibility to survive.
New York (HedgeCo.Net) – The British Financial Services Authority has imposed a fine on Steven Harrison for about $93,000 after accusing him of market abuse. Harrison will not be allowed to work as a trader for the next 12 months.
According to the allegations made by the FSA, Harrison told a co-worker at the Moore Credit Fund to purchase 2 million 10.5 percent senior notes in chemical company Rhodia SA, after having received insider information from members at Credit Suisse. Harrison was contacted in September 2006 by Credit Suisse to help them establish pricing for Rhodia’s bonds.
Knowing that Rhodia would be seeking board approval for its refinancing, Harrison made the order. The fund proceeded to make about $63,000 off that knowledge, though the FSA is not condemning the actions of Credit Suisse.
The FSA also acknowledged that Harrison did not make a personal profit from those trades. Harrison worked for Moore Europe Capital Management; a subsidiary of New-York based Moore Capital Management.
Moore Capital has a long standing reputation in the states for the global-macro strategies they employ, while investing in stocks, bonds and currencies. Founded by U.S. billionaire Louis Bacon in 1989, Moore Capital manages an estimated $15 billion in assets.
This is the latest in a string of attempts by the FSA to further probe hedge funds, after passing two new rules this summer requiring disclosure about shorting stocks and regarding derivatives.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) – Eight people were arrested yesterday in London on suspicions of insider trading.
The city of London police and about 40 Financial Services Authority officials targeted workers at UBS and JPMorgan Cazenove, in what they are calling “a major ongoing investigation into insider dealing rings.”
It is believed that the suspected individuals shared price-sensitive information contained at the bank’s printing facilities that had not yet been made available to the public.
Ironically, Malcolm Calvert was indicted last week, also from Cazenove who allegedly used inside info to purchase huge stakes in companies that were rumored to be potential targets for takeovers from 2003-2005. It is unknown as to whether or not the two instances are related.
Names have not been released, but the FSA did confirm to the Financial Times that one of the men arrested was a junior member of UBS’s support staff in London. He is currently suspended while the investigation unfolds.
As for the others, the FSA has only confirmed that they are men between the ages of 27 and 48. No word yet on how much money the individuals are thought to have gained through the insider deals.
This marks the third insider trading case filed by the FSA this year. The City of London police were asked to get involved, as the FSA does not have the authority to arrest.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Times Online- Proper consultation is the rock upon which good regulation is founded. And for the Financial Services Authority, consultation is in its DNA. So when it does the unthinkable and drops a bombshell without warning or discussion — as last week with the announcement of the Short Selling Instrument — people are bound to be left shellshocked and confused, especially if they are lawyers under pressure from clients to advise on what needs to be done.
Designed, allegedly, to bring greater transparency to the market in the aftermath of the recent rights issues shambles by HBOS and Bradford & Bingley, the measure could have been called the “short notice instrument” because there were mere days between its announcement and its operational effect. The FSA’s justification for the move was that market conditions gave rise to increased potential for market abuse and therefore “immediate measures” were necessary to “maintain market confidence and prevent potential abuse during rights issues”.
Times Online- The hedge fund industry’s lobby group mounted a last-ditch attempt yesterday to persuade the City regulator to delay its controversial rules on short-selling, which are due to come into force tomorrow.
The Alternative Investment Management Association sent a letter to the Financial Services Authority (FSA) asking for more time for its members to prepare for the changes.
The association’s call was backed by Andrew Shrimpton, the former head of hedge fund regulation at the FSA. He said that the regulator should wait “until next Wednesday, at the earliest” to give the funds sufficient breathing space. “The FSA is skating on thin ice, using emergency powers to bring in these requirements, and is vulnerable to a legal challenge,” Mr Shrimpton said. “It should try to generate some goodwill with the industry by showing it can listen and back down in light of what it hears.”
Times Online- The Financial Services Authority took the unprecedented step of pressuring Britain’s five biggest banks into supporting the revised rescue capital-raising at Bradford & Bingley last week, The Times has learnt. HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS are understood to have each agreed to sub-underwrite £20 million-worth of the reworked £258 million rights issue.
The banks agreed to step in when Citigroup and UBS, the lead underwriters, could find no one to whom they could lay off some of the risk. Underwriters typically pass on some of the risk to institutions known as sub-underwriters. The FSA, worried that too much Bradford & Bingley stock would be left with UBS and Citigroup, which are already under pressure, decided in the middle of last week to ask the big five to take some of the risk.
