When a securities trader exploited a defect in automated trading software to make a considerable profit on a series of small trades made over a year, he probably thought he was doing nothing wrong…and indeed, that point remains arguable.

Regrettably for him, however, the Financial Services Authority (FSA) took a contrary view and fined him more than £300,000. This was considerably less than the sum originally sought, the reduction being the result of the man’s early ‘guilty’ plea to the FSA’s charge of market manipulation.

The scheme worked (in effect) by placing small trades to set a market price for ‘contracts for differences’, then following these up with much larger trades at the new market price.

This exploited a weakness in the automated trading software used in such markets and the FSA appears to have taken exception to the trader’s lack of openness about what he was doing (the scheme involved masking who the real trader was and using different intermediaries for different aspects of the trades) and the lack of any ‘downside risk’ in the transactions.

The FSA is clearly ready to attack vigorously anything it sees as an illegitimate way of making profit through manipulating the prices of financial instruments or exploiting insider knowledge.


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