FCA bans and fines trader £662,700 for manipulating gilt price during QE

Published: 20/03/2014   Last Modified : 01/04/2014

Mark Stevenson, a bond trader with nearly 30 years' experience, has been banned from the industry and fined £662,700 for deliberately manipulating a UK government bond (gilt) on 10 October 2011.

Stevenson intended to sell his holding, worth £1.2 billion, to the Bank of England (the Bank) for an artificially high price during quantitative easing (QE) operations that day. His unusual trading was reported within 40 minutes and the Bank decided not to buy that gilt as part of QE.

Tracey McDermott, the Financial Conduct Authority's (FCA) director of enforcement said:

"Stevenson's abuse took advantage of a policy designed to boost the economy with no regard for the potential consequences for other market participants and, ultimately, for UK tax payers.  He has paid a heavy price for his actions.

"Fair dealing is at the heart of market integrity. This case sends a clear message about how seriously the FCA views attempts to manipulate the market."

This is the first enforcement action for attempted or actual manipulation of the gilt market.

Stevenson's conduct, described by the FCA as "particularly egregious", fell far below the standards of integrity expected of FCA approved persons. The investigation found this was the action of one trader on one day, and there is no evidence of collusion with traders in other banks.  

The FCA has a statutory objective to ensure markets work well and promote market integrity.

Key events

  • Between 1 July and 5 October 2011, Stevenson gradually increased his holding of the relevant gilt, as he thought its value could rise if the Bank decided to hold another round of QE.
  • On Thursday 6 October 2011, the Bank announced that QE would be reintroduced on 10 October 2011.
  • Between 09:00 and 14:30 on 10 October Stevenson significantly increased his holding of the relevant gilt - which accounted for 92% of the gilt's turnover that day.
  • Given his significant market experience he was fully aware of the impact this would have  and traded with the express intention of increasing the gilt's price.
  • By 09:39 others in the market had highlighted this unusual activity to the Bank, with one trader noting that this appeared to be a deliberate attempt at "pushing the price higher in order to sell… later in the day".   
  • The price and yield of the bond significantly outperformed similar gilts on 10 October 2011 as a direct result of Mr Stevenson’s trading.  Stevenson stopped buying the bond at 14:30, whilst QE was underway.
  • At 14:56, the Bank took the unprecedented step of announcing that it would not purchase the affected gilt, following significant changes in its yield that day.
  • By 15:30 the gilt’s performance had completely reversed, and by the end of the day its price was back in line with comparable bonds. 

Had Stevenson’s offer to trade with the Bank been accepted, he would have accounted for 70% of the £1.7 billion allocated to QE on that day. If the Bank had accepted his offer any subsequent losses it made would have been indemnified by the government - at taxpayers’ expense.   

Stevenson agreed to settle at an early stage of the investigation, qualifying for a 30% discount. Without this discount, the FCA would have imposed a fine of £946,800.

Notes for editors

  1. The Final Notice - for a more detailed description of Stevenson's trading, and price movements of the affected bond, please see section four.
  2. UK government bonds are commonly referred to as gilts. They are extensively traded, with turnover of £7.2 trillion in the interdealer broker market in 2011. Specific gilts are described with reference to the interest they pay (coupon) and their maturity. The gilt Stevenson manipulated was UKT (United Kingdom Treasury) 8.75% 2017, a gilt that paid 8.75% interest maturing in 2017. 
  3. The government authorised the Bank to run two programmes of Quantitative Easing (QE), between March 2009 – February 2010 and 10 October 2011 - May 2012 (QE2) to stimulate the economy, with the aim of improving liquidity, and moving inflation towards the 2% target..
  4. During QE the Bank purchased specified gilts from key firms through a competitive reverse auction.  On specified days, firms offered to sell the Bank eligible gilts between 14:15 and 14:45. The Bank ranked the offers against the mid-market price and bought gilts, starting with the cheapest, until the target purchase size was met for that day. Stevenson's actions artificially increased the mid-market price, making his offer to sell at a marginally lower price look superficially attractive.
  5. Stevenson's conduct was a clear case of market manipulation - designed to secure the price of the relevant gilts at an abnormal or artificial level. The FCA's rules on market conduct.
  6. Stevenson was an FCA approved person and held the CF30 (customer function) between July 2008 - October 2012, and was previously a CF 21 (investment advisor function) from December 2001, more detail on the FCA's rules on approved persons.
  7. On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  8. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  9. Find out more information about the FCA.

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