19 March 2018

FCA slaps trader who outfoxed algos with £60k fine

22 November 2017  |  7059 views  |  0 chess

A former Bank of America Merrill Lynch trader has been fined £60,090 by the Financial Conduct Authority (FCA) for tricking algorithms into buying loans.

Bond trader Paul Walter was slapped with the market abuse fine after an FCA investigation found that on 11 occasions he entered a series of quotes on electronic trading platform BrokerTec that became the best bids for Dutch State Loans.

This meant that other traders that were using algorithms to track DSL prices increased their own bids for the loans. Walter then sold to these other market participants but cancelled his own quotes at the inflated prices.

On one other occasion, the trader flipped his trick: attracting others to follow him so he could buy DSL from them at a lower price before cancelling his own quote.

The trades occurred in July and August 2014, netting EUR22,000. Walter was suspended by BAML shortly after and left the bank in 2015.

The FCA says that while the trader did not know that his conduct amounted to market abuse, he was "negligent" in not realising this.

Mark Steward, executive director, enforcement and market oversight, FCA, says: "Market manipulation undermines market integrity and confidence. The FCA will be vigilant in detecting abusive practices and will take robust action to protect issuers and participants from all over the world from the harm caused by such abuse."

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