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UK watchdog fines 3 traders for ‘market manipulation’ in Italian bond futures

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UK regulators have decided to ban and set fines totalling almost £600,000 on three bond traders for “market manipulation” six years ago when they were employed by the UK-based subsidiary of Japan’s Mizuho Financial Group.

The Financial Conduct Authority has decided to fine Diego Urra £395,000, and Jorge Lopez Gonzalez and Poojan Sheth £100,000 each for market abuse and ban them from “performing any functions in relation to regulated activity”, the watchdog said on Wednesday.

The FCA said the traders placed “large misleading orders” for Italian sovereign bond futures that “they did not intend to execute, giving false and misleading signals and a false or misleading impression as to the supply or demand” of the securities from June 1 to July 29 2016.

“At the same time, they placed small orders which they did intend to execute on the opposite side of the order book,” the FCA added.

The traders repeated this pattern of “deliberate and intentional market manipulation on a number of occasions and were dishonest”, the regulator said.

The traders are contesting the FCA’s decision and have referred it to the upper tribunal, an independent body where people can challenge the regulator’s decisions. The tribunal will hear both sides of the case and determine whether to approve the FCA’s decision.

Urra had more than 18 years of experience in financial services and joined Mizuho International in 2013, according to the FCA. He managed the company’s European government bond desk and oversaw both Lopez Gonzalez and Sheth, who had 10 and four years of trading experience respectively.

The FCA said the trio carried out an “abusive trading strategy” for Italian government bond futures by placing a large order to create the impression of increased supply or demand. This would help them execute a smaller genuine order that they actually wanted to trade on the opposite side of the order book.

“The purpose of this was to create the impression that there was additional supply in the market with the aim of encouraging other market participants to sell,” the regulator said, therefore increasing the chance of their own order being executed. Once the smaller genuine trade was complete, they would cancel the large placements.

The FCA found that each individual carried out such trades more than 30 times on their own, as well as acting together on more than 60 occasions.

“This market manipulation was serious and directly undermined the integrity of the market,” the regulator said.

The fines and bans reflect the “serious nature of the breaches” and should act as a deterrent to other market participants, the FCA said.

“Mizuho International is not party to these proceedings in relation to former employees, and the FCA has confirmed there are no other investigations or actions pending in respect of these matters,” Mizuho said, adding that the company “was cleared of any wrongdoing in 2019”.

“Mizuho International itself reported these events to the FCA in 2016 and has fully co-operated with the FCA throughout its investigation,” the company added.

No other investigations related to the trading are being carried out.

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