UK Regulator FCA Banned & Fined 3 Mizuho Traders $725,000 for Market Manipulation, Placed Large Orders on Italian Government Bond Futures to Send False Signals to Market & Small Orders on Opposite Side
7th December 2022 | Hong Kong
The UK regulator Financial Conduct Authority (FCA) has banned & fined 3 Mizuho traders $725,000 (£595,000) for market manipulation, with the 3 traders placing large orders on Italian Government Bond Futures (BTP Futures) to send false signals to market with no intention to execute and small orders executed on the opposite side to create false demand & supply. The 3 Mizuho traders are Urra (£395,000), Lopez Gonzalez (£100,000) and Sheth (£100,000). UK FCA: “The FCA considers that the traders placed large misleading orders for BTP 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 Italian Government Bond futures (BTP Futures) between 1 June 2016 and 29 July 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 considers that the individuals repeated this pattern of deliberate and intentional market manipulation on a number of occasions and were dishonest.” See below for background on case and UK FCA Announcement.
“ UK Regulator FCA Banned & Fined 3 Mizuho Traders $725,000 for Market Manipulation, Placed Large Orders on Italian Government Bond Futures to Send False Signals to Market & Small Orders on Opposite Side “
BTP – Italian Government Bonds, Buoni del Tesoro Poliannuali
BTP Futures are interest-rate futures contracts (i.e. an agreement to buy or sell at a fixed price), based on a notional BTP with a remaining term of between 2 years and 11 years. References to BTP Futures in this notice are to contracts with a remaining term of between 8.5 and 11 years and a 6% coupon. A BTP Future has a standard €100,000 nominal contract value. One individual contract is often called a “lot”.
Mizuho Traders Market Manipulation
Mizuho Traders – Urra managed the EGB desk, including Jorge Lopez Gonzalez, who was a Director, and Poojan Sheth, who was an Associate (together with Mr Urra “the Traders”). The Traders traded EGBs and related instruments and shared their trading books with one another. The desk’s key role was to provide prices and liquidity in EGBs to MHI clients and the Traders would often hedge their trades with clients through EGB futures on the EUREX Exchange.
During the period 1 June to 29 July 2016, Mr Urra utilised an abusive trading strategy in EGB futures on the EUREX Exchange in Italian Government Bond futures (“BTP Futures”). He would place a large sized order on one side of the order book for the purpose of creating the impression of increased supply or demand, with the objective of assisting the execution of a smaller genuine order he wished to trade on the opposite side of the order book. For example, if Mr Urra wanted to buy bond futures, as well as placing a bid for those futures, he would place a large order to sell bond futures. 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 (thereby increasing the chances of his buy order being executed). Once the smaller genuine order had been executed, he would cancel the large order.
Furthermore, this same pattern of abusive conduct through the placement of large orders on the opposite side of the book was also carried out by Mr Urra in concert with Mr Lopez and Mr Sheth. For example, Mr Urra would place an order he genuinely wished to trade and Mr Lopez or Mr Sheth would place a much larger order on the opposite side of the book for the purpose of creating the impression of additional supply or demand, thus assisting the execution of the genuine order.
Through the placement of these large misleading orders, Mr Urra and the other Traders falsely represented to the market an intention to buy or sell when their actual intention was the opposite. The only purpose of the large orders was to assist the execution of the smaller genuine orders that the Traders wanted to trade. The abusive trading strategy was such that it was unlikely the large misleading orders would themselves trade; notably, they were placed away from the touch (that is, the highest price to buy and the lowest price to sell) and were quickly cancelled.
This conduct gave false and misleading signals to the market as to demand and supply. It amounted to market manipulation which since 3 July 2016 has been prohibited by Article 15 of the Market Abuse Regulation, and until 2 July 2016 was prohibited by section 118(5) of the Act (the Relevant Period straddles the date on which the Market Abuse Regulation came into effect in the UK). Article 15 of the Market Abuse Regulation and section 118(5) of the Act are equivalent provisions; section 118(5) refers to “a false and misleading impression” rather than “false and misleading signals”, but the Authority considers that there is no material difference between those concepts for the purposes of this Notice.
FCA publishes Decision Notices against three bond traders for market manipulation
7th Dec 2022 – The FCA has published Decision Notices given to Diego Urra, Jorge Lopez Gonzalez and Poojan Sheth, three bond traders, for market abuse.
The FCA has decided to ban Mr Urra, Mr Lopez Gonzalez and Mr Sheth from performing any functions in relation to regulated activity. The FCA has also imposed fines of £395,000 on Mr Urra and £100,000 each on Mr Lopez Gonzalez and Mr Sheth.
The traders, who worked at Mizuho International Plc at the time, have referred the Decision Notices to the Upper Tribunal where they and the FCA will each present their cases.
The Tribunal will then determine what, if any, is the appropriate action for the FCA to take, and will remit the matter to the FCA with such direction as the Tribunal considers appropriate for giving effect to its determination and in relation to the prohibition orders, whether to dismiss the references or remit them to the Authority with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal.
The Tribunal’s decision will be made public on its website. Accordingly, the proposed action outlined in the Decision Notices will have no effect pending the determination of the case by the Tribunal.
The FCA considers that the traders placed large misleading orders for BTP 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 Italian Government Bond futures (BTP Futures) between 1 June 2016 and 29 July 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 considers that the individuals repeated this pattern of deliberate and intentional market manipulation on a number of occasions and were dishonest.
In the FCA’s view, the fines and the bans that it has decided to impose reflect the serious nature of the breaches set out in the Decision Notices and should act as a deterrent to other market participants. There are no other ongoing investigations or actions relating to the trading.
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