From Telegraph:
Barnett Alexander was fined by the Financial Services Authority after making a £630,000 profit exploiting what he called a "loophole" in Michael Spencer's City Index spread betting platform.
The FSA found his actions amounted to "deliberate and repeated" market manipulation.
Mr Alexander was ordered to repay £323,000 in restitution payments to the firms he was trading through. He has also forfeited £306,000 held in trading accounts. The vast bulk of the trades were placed through City Index.
The fine came despite Mr Alexander claiming he did not know he was operating illegally and was just exploiting a weakness in the way spread-betting companies operate.
"This came as a complete shock to me," he said. "I never realised my actions amounted to market abuse. I developed a system that was very profitable and was aimed at a exploiting a weakness in spread-betters' trading platforms."
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Mr Alexander, a former stock broker, made money by placing small orders for shares on the open market at times when trading was slow. These would typically be at the bottom range of a company's bid-offer spread.
With this price lodged at the London Stock Exchange he would then take advantage of spread-betting firm's price-matching promises to buy shares at the reduced price.
When he came to sell the shares he would operate the process in reverse. He would set a high price by placing an order for a small number of shares on the open market closing his position with the spread betting firm immediately afterwards.
According to Mr Alexander nothing has been done to close the loophole he exploited.
The fine and a ban on operating in a regulated capacity comes amid a wider crackdown by the FSA on market abuse.
Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "The FSA views market manipulation extremely seriously. Alexander's behaviour was deliberate and repeated over a significant period of time.
"He sought to conceal his trading and made substantial profits at the expense of the firms which allowed him to trade with them."
Mr Alexander, who now plans to write a book about his experiences and lecture on the pitfalls of trading, first found out about the investigation when his house was raided by the FSA in May last year. His computer was impounded as were his children's computers and a £1m freezing order was placed on his assets.
He said: "This is very complex area of law. Had I known what I was doing was illegal I would have stopped immediately. But no one contacted me to warn me about their concerns. "
It is understood the FSA was initially pursuing both criminal and civil charges against Mr Alexander. The criminal charges were dropped after a six month investigation. By cooperating with the investigation Mr Alexander saw his £1m fine reduced to £700,000.
Once dubbed the City's richest man, Mr Spencer – the founder and chief executive of ICAP – lost tens of millions of pounds in the credit crisis.
A spokesperson said: "It is unfortunate that in this instance a trader has made the decision to abuse a system which the majority of our clients use appropriately and within the law. We believe the successful prosecution of an individual involved in market manipulation is a positive result for our industry."
Barnett Alexander was fined by the Financial Services Authority after making a £630,000 profit exploiting what he called a "loophole" in Michael Spencer's City Index spread betting platform.
The FSA found his actions amounted to "deliberate and repeated" market manipulation.
Mr Alexander was ordered to repay £323,000 in restitution payments to the firms he was trading through. He has also forfeited £306,000 held in trading accounts. The vast bulk of the trades were placed through City Index.
The fine came despite Mr Alexander claiming he did not know he was operating illegally and was just exploiting a weakness in the way spread-betting companies operate.
"This came as a complete shock to me," he said. "I never realised my actions amounted to market abuse. I developed a system that was very profitable and was aimed at a exploiting a weakness in spread-betters' trading platforms."
Related Articles
Mr Alexander, a former stock broker, made money by placing small orders for shares on the open market at times when trading was slow. These would typically be at the bottom range of a company's bid-offer spread.
With this price lodged at the London Stock Exchange he would then take advantage of spread-betting firm's price-matching promises to buy shares at the reduced price.
When he came to sell the shares he would operate the process in reverse. He would set a high price by placing an order for a small number of shares on the open market closing his position with the spread betting firm immediately afterwards.
According to Mr Alexander nothing has been done to close the loophole he exploited.
The fine and a ban on operating in a regulated capacity comes amid a wider crackdown by the FSA on market abuse.
Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "The FSA views market manipulation extremely seriously. Alexander's behaviour was deliberate and repeated over a significant period of time.
"He sought to conceal his trading and made substantial profits at the expense of the firms which allowed him to trade with them."
Mr Alexander, who now plans to write a book about his experiences and lecture on the pitfalls of trading, first found out about the investigation when his house was raided by the FSA in May last year. His computer was impounded as were his children's computers and a £1m freezing order was placed on his assets.
He said: "This is very complex area of law. Had I known what I was doing was illegal I would have stopped immediately. But no one contacted me to warn me about their concerns. "
It is understood the FSA was initially pursuing both criminal and civil charges against Mr Alexander. The criminal charges were dropped after a six month investigation. By cooperating with the investigation Mr Alexander saw his £1m fine reduced to £700,000.
Once dubbed the City's richest man, Mr Spencer – the founder and chief executive of ICAP – lost tens of millions of pounds in the credit crisis.
A spokesperson said: "It is unfortunate that in this instance a trader has made the decision to abuse a system which the majority of our clients use appropriately and within the law. We believe the successful prosecution of an individual involved in market manipulation is a positive result for our industry."
