UK regulator wins 7.6 million pound High Court 'layering' market abuse order

LONDON (Reuters) - A British High Court judge has ordered a Swiss investment firm and three Hungarian traders to pay 7.6 million pounds for manipulating share prices on UK trading platforms, handing the regulator a victory after a four-year legal battle.

Judge Richard Snowden ruled on Wednesday that the Financial Conduct Authority (FCA) was entitled to permanent injunctions and penalties against Da Vinci Invest, Seychelles-based Mineworld and traders Szabolcs Banya, Gyorgy Szabolcs Brad and Tamas Pornye.

The defendants, four of which were incorporated or resident in Switzerland, the Seychelles and Hungary, used a banned high-frequency trading strategy called “layering” when dealing with 186 UK-listed shares, the court ruled.

Layering won global attention in April when U.S. prosecutors alleged Navinder Singh Sarao, a Briton trading from his parent’s home, used the technique to help trigger the May 2010 Wall Street “flash crash” in which nearly $1.0 trillion was temporarily wiped from stock prices.

The FCA said the defendants accessed trading platforms via a broker service called Direct Market Access (DMA), used derivatives and submitted multiple orders to dupe the market about the true supply and demand for shares.

When stocks moved, they cancelling or withdrew those orders and traded in the opposite direction at an artificial price, profiting from the price movement they had created.

Tipped off by one of the trading platforms used by one of the companies, the FCA first took action against the group in July 2011, shortly after it fined a separate company, Canada’s Swift Trade, for using the same technique.

As some of the defendants were not UK-regulated entities and were based abroad, the regulator applied for an interim injunction and asset freezing court order and when the case was contested, it continued to pursue the case through the courts.

“This case demonstrates that we are prepared to take robust action to ensure the integrity of UK markets,” said Georgina Philippou, acting director of the FCA’s enforcement and market oversight division. “This was a sophisticated form of abuse that took place across multiple trading platforms.”

The traders have the right to apply for permission to appeal the ruling but have not yet said if they plan to do so.

Editing by David Holmes