Under the proposals, FSA officials would be given ‘specified prosecutor status’, which would allow them to grant immunity from prosecution. The idea is to encourage people to come forward with information on anyone deliberately manipulating the markets - like those naughty traders who started the rumours about HBOS last week. The City is notoriously hard-to-police, with a deeply ingrained ‘look after your own’ culture, but the plan is designed to develop what one official described as ‘a system of City grasses’. Which is all very mob-like and exciting.
But it’s probably about time something was done. Especially after the HBOS debacle, in which shares in the bank were driven down by as much as 17% on Wednesday, by what the FSA called ‘false’ rumours – thought to have been spread by greedy dealers short-selling the stock. This iinvolves borrowing shares, selling them immediately and buying them back again later at a lower price. The borrowed shares can then be returned to their owner while the trader pockets the difference. Call us old-fashioned, but here at MT we think that selling something that doesn't belong to you is a pretty sorry way to make a living.
The proposed system, to be developed over the next few months, is similar to one already used in the US. Critics have, however, highlighted the fact that evidence in insider dealing cases is usually circumstantial, and thus such cases will remain difficult to prosecute. More promising perhaps is the suggestion that the FSA would also get plea bargaining powers, such as those currently available to SFO and Home Office, which may encourage guilty parties to come forward.
The plan is the latest stage in Alistair Darling’s drive to tighten up activity in the City – alongside his desire to get smarter about risk in financial markets following the Northern Rock debacle. But however well intentioned, his attempts are likely to be fraught with problems. The difference between 'market manipulation' and plain old 'market economics' being mostly a question of which side of the fence you are on. The Chancellor has described the current climate as a ‘period of unprecedented uncertainty’. Presumably he’s not just referring to how long he can hold on to his incident-rich tenure.