FSA censures traders after their appeal

THE FINANCIAL Services Authority yesterday censured two bond traders who had appealed against market abuse allegations, stopping short of issuing a hefty fine or a lifelong ban.<br /><br />The news prompted speculation that more people would now choose to appeal to the FSA Regulatory Decision Committee (RDC), as the watchdog forges ahead with its aggressive enforcement policy.<br /><br />Darren Morton and Christopher Parry, both senior portfolio managers at Dresdner Kleinwort &ndash; now owned by Commerzbank &ndash; were found to have committed market abuse in relation to their handling of $65bn (&pound;41bn) in Barclays debt.<br /><br />Morton and Parry said they believed they were acting in accordance with market practice when they sold Barclays&rsquo; bonds in March 2007 after Morton was told that a new issue was to be announced on more favourable terms.<br /><br />It is standard practice for banks to contact key investors to gauge appetite, or &ldquo;sound out&rdquo; the market, before publicising new stock or bond issues, and Morton argued it was perfectly acceptable to trade ahead of new issues in the market.<br /><br />When the regulator disagreed, the traders decided to challenge the decision at a formal hearing with the RDC, headed by chairman Tim Herrington. The move was unusual, as most people accused by the FSA agree to settle in exchange for a significant &ldquo;cooperation&rdquo; discount.<br /><br />But the FSA said its decision to issue a censure reflected the fact that traders may not have been fully aware of the rules, but warned that &ldquo;future offenders will be likely to face significantly more severe sanctions&rdquo;.<br /><br />&ldquo;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 &lsquo;sounded out&rsquo; on a new issue,&rdquo; said FSA director of enforcement Margaret Cole. &ldquo;This is not the case.&rdquo;