Hedge Fund Market Abuse Case Results In Fines
LONDON – The UK's Financial Services Authority (FSA) hit London-based hedge fund, GLG, and its former senior trader, Philippe Jabre, with a fine of £750,000 each in early March for market abuse.
The decision comes more than two years after the original incident, when Goldman Sachs approached Jabre during its pre-marketing phase of a convertible bond issue for Sumitomo Mitsui Financial Group.
A Goldman Sachs employee, John Rustum, passed 'inside information' to Jabre, who claims he didn't realise the information was such, said a party close to the situation. Jabre then used the information to make a profit. "[It was] a complicated call, which led to a misunderstanding. Goldman Sachs has admitted this [to the FSA] in writing," said the source.
Rustum no longer works for Goldman Sachs and couldn't be contacted for comment.
A Goldman Sachs spokesman says the dealer does not comment on "regulatory matters", but an official at the US bank said its staff made it "very clear" to Jabre that he was "an insider". GLG and the FSA both refused to comment publicly on the matter.
According to the person close to the decision, although fined, Jabre was not suspended nor barred from involvement in the financial sector. This was ultimately because he was found not to have intended to break FSA rules. His offence was "a misunderstanding in hindsight". However it is "unlikely" that Jabre will stay with GLG.
The ruling represents the first successful case that the FSA has brought against a hedge fund for market abuse.
Convertible bonds represent a lucrative arbitrage opportunity for hedge funds, which can profit from going long on the bond and short on the issuer's equity.
The FSA realises this and is stepping up its monitoring of potential insider trades.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
FCA presses UK non-banks to put their affairs in order
Greater scrutiny of wind-down plans by regulator could alter capital and liquidity requirements
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies