FSA censures Dresdner Kleinwort traders
by Gill Montia
Story link: FSA censures Dresdner Kleinwort traders
The Financial Services Authority (FSA) has publicly censured a director and vice president at Dresdner Kleinwort, now part of Commerzbank.
The regulator found that Darren Morton and Christopher Parry committed market abuse in relation to a new issue of Barclays’ bonds.
In March 2007, both were portfolio managers with Dresdner’s Structured Investment Vehicle, K2, which held $65 million in a Barclays’ floating rate note (FRN) issue.
According to the FSA, Mr Morton was given inside information about a potential new issue of Barclays FRNs, on more favourable terms than the previous issue.
Acting on this inside information, Mr Morton and Mr Parry then sold K2’s entire holding of the previous issue to two separate counterparties who were unaware of the proposed new issue of FRNs, later on the day of the sale.
When a new issue of FRNs was announced, the counterparties independently complained to K2 about the circumstances of the trades.
When questioned, Mr Morton and Mr Parry told the FSA that they believed they were acting in accordance with market practice but the regulator has not accept that such a belief is reasonable.
FSA director of enforcement, Margaret Cole, says: “It was argued that practices in the debt market meant it was always acceptable to trade after being ’sounded out’ on a new issue.”
She adds: “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.”
Ms Cole goes on to warns that future offenders will be likely to face “significantly more severe sanctions”.
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