By a neat coincidence, the latest briefing paper on the battle against insider trading from the Financial Services Authority pinged into the City's e-mail boxes just as news broke of what, by any rational analysis, was serious insider trading in the shares of Bradford & Bingley.
The tottering bank, one of the more widely held financial stocks, saw 14 per cent wiped off its share price in the three working days immediately preceding a profits warning so shocking that it allowed the two banks underwriting the rights issue to walk away from their obligations and rejig the issue.
The FSA admits that it is “disappointed” by the level of insider trading in London, which it believes took place before a fifth of all takeover announcements last year. The record shows that since 2001, when the authority took over responsibility for policing market abuse, of which insider dealing is just one variety, there have been only 14 successful actions. Despite the odd high-profile case, most recently the £750,000 fine on Philippe Jabre, the hedge fund manager, net worth when last estimated £200 million, most fines ran to a few thousand pounds.
On Wall Street, the Securities and Exchange Commission has also admitted that today looks like a replay of the Ivan Boesky years. The Americans are, true to form, taking action, against some blue chip names where necessary. In London, it ought to be just as easy. Insider trading cases in the 1990s were few, occasionally sweeping up the odd blameless analyst who had extracted too much out of the finance director over a G&T. The criminal burden of proof, required, beyond all reasonable doubt, was too onerous. The FSA was able to take over by promising to up the hit rate by going for a civil, balance of probabilities, proof that was much more likely to get results.
You take some hedge fund that has never expressed the remotest interest in B&B, say, but took a large short position last Thursday afternoon. Unless same hedge fund can find a pretty compelling reason for its behaviour, it should be bang to rights.
You won't pick up everyone who dealt inside, but it's a start, and it doesn't half encourage the others. These past few difficult months have seen some apparently flagrant abuse, such as the short-selling and false rumours that undermined HBOS shares earlier in the year. In these febrile markets, when no one knows what anything is worth, it is all too easy.
Yet nothing seems to be happening. At this point it is traditional to kick the FSA. But the authority counters that the tribunal deciding market abuse cases seems increasingly to be applying a far higher burden of proof than the 51:49 required. This tribunal in part consists, cosily enough, of City practitioners sitting in judgment on their peers.
This has required the FSA to fall back on more difficult criminal action. Which puts us back where we were. The FSA is pinning its hopes on plea-bargaining and immunity for whistleblowers. This would blow apart those cosy cartels of insiders that we know exist out there. But this would take primary legislation and could be years off. If recent unpleasant events in the market, not least those involving B&B, do not result in a couple of high-profile scalps, then we will know the system as it stands is not fit for purpose.
One of the authority's recommendations is to keep the number of insiders to a minimum. Blindingly obvious; but on the B&B warning/rights reshuffle there were four banks involved. No one is saying how many knew, but assume a hefty four-figure number. Funny how it seems to have leaked.
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