U.K. Fines Former Credit Suisse Bond Trader

LONDON â€" Another day, another iteration of financial fraud innovation.

Britain’s Financial Conduct Authority on Thursday fined and banned a veteran Credit Suisse bond trader for manipulating the price of United Kingdom bonds in 2011 during one of the
periods of so-called quantitative easing, when the Bank of England bought large swathes of government bonds to stimulate the economy.

The authority fined Mark Stevenson £662,700, or about $1.1 million, and banned him from the industry, it said in a statement. Mr. Stevenson had nearly 30 years’ experience. He left the bank in December 2013. By settling early in the investigation, the authority said, he knocked 30 percent off of his fine.

U.K. government bonds are commonly referred to as gilts. They are widely traded with roughly £7.2 trillion of turnover in 2011 in the inter-dealer broker market. The government authorized the Bank to run two quantitative easing programs, between March 2009 and February 2010 and between October 2011 and May 2012, to stimulate the economy and move inflation toward the 2 percent target.

On Oct. 10, 2011, as QE2 started, Mr. Stevenson attempted to sell £1.2 billion gilt to the Bank of England for an artificially high price. His unusual trading was reported within 40 minutes and the Bank decided not to buy that gilt.

The authority said that Mr. Stevenson’s trading that day “was designed to move the price of the Bond, in an attempt to sell it to the Bank of England at an abnormal and artificial level, thereby increasing the potential profit made from the sale of the Bond.”

Had the bank accepted Stevenson’s offer, the authority said, he would have accounted for 70 percent of the £1.7 billion allocated to quantitative easing on that day, the regulator said. If the bank had accepted his offer any subsequent losses it made would have been borne by the taxpayer.

“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,” said Tracey McDermott, the FCA’s director of enforcement.

As Mr. Stevenson was accumulating the bonds to try and sell back to the Bank of England, he said to one broker: “we’ve been loading up with QE trades for months” adding that “QE’s are … cake..,”. according to the Financial Conduct Authority’s filing. In other words, Mr. Stevenson thought he could profit from selling gilts to the Bank of England.

The authority said the case was its first enforcement action for attempted or actual manipulation of the gilt market. The investigation was isolated, the FCA said, and it has not found evidence of collusion with traders in other banks.

Credit Suisse said in a statement that it cooperated fully with the Bank of England and the Financial Conduct Authority. Credit Suisse said it agreed with the sanction of Mr. Stevenson and was pleased “to note that neither Credit Suisse nor any other employed individuals have been found at fault.”