On 19 December, the Court of Appeal handed down its judgment on the appeal by the Canadian company formerly known as Swift Trade Inc and its former director Peter Beck, who had appealed against a decision of the Upper Tribunal (Tax and Chancery Chamber) issued in January 2013 finding that Swift Trade had engaged in deliberate market abuse. There were two grounds of appeal:
- Whether Swift Trade’s trading activity was abusive within the market abuse provisions in section 118 of the Financial Services and Markets Act 2000 (FSMA) because Swift Trade itself traded in contracts for difference (CFDs) rather than shares; and
- Whether the dissolution of Swift Trade after the issue of the Warning Notice meant that subsequent proceedings were a nullity.
The Court of Appeal agreed with the Financial Conduct Authority (FCA) and the Tribunal that the layering activity was in relation to qualifying investments as set out in FSMA, that Swift Trade had effected the transactions or orders to trade and therefore that it had engaged in market abuse. This is an important decision which confirms that the FCA’s interpretation of the Act was correct and that a market participant such as Swift Trade, which knows that the orders it places in CFDs will be mirrored automatically in orders in shares, will be effecting transactions or orders to trade in or in relation to qualifying investments and can therefore be found to have engaged in market abuse according to s.118 FSMA.
On the second issue, which is of more limited application, the Court of Appeal agreed, by a majority of 2 to 1, that the tribunal was entitled to reach the conclusions it did as to the status of Swift Trade and dismissed the appeal.
*Update – A Final Notice for Swift Trade[1] was issued on 24 January 2014.
Notes for editors
- The Court of Appeal judgment[2].
- A copy of the Decision of the Upper Tribunal dated 23 January 2013 can be seen on the Tribunal’s website.[3]
- The FSA published its Decision Notice against Swift Trade[4] on 31 August 2011.
- Layering involves entering relatively large orders on one side of the LSE order book, which has the effect of moving the share price as the market adjusts to the fact that there has been an apparent shift in the balance of supply and demand. This is then followed by a trade on the opposite side of the order book which takes advantage of, and profits from, the share price movement. This is in turn followed by a rapid deletion of the large orders which have been entered in order to cause the movement in price, and by a repetition of this behaviour in reverse on the other side of the order book. Swift Trade placed the large orders in order to give a false and misleading impression of supply and demand. The large orders were not intended to be traded. They were carefully placed close enough to the touch price (i.e. the best bid and offer prevailing in the market at the time) to give a false and misleading impression of supply and demand, but far enough away to minimise the risk that they would be traded. The trading activity caused many individual share prices to be positioned at an artificial level, from which Swift Trade profited directly.