Posts Tagged ‘Financial Markets’

MSNBC wrote: A former top executive at a $1 billion hedge fund investment firm was sentenced to more than two years in prison Friday in the first sentencing to result from what prosecutors have called the largest hedge fund insider trading case in history.

Mark Kurland, 61, of Mount Kisco, N.Y., was sentenced Friday to two years and three months in prison and ordered to forfeit the $900,000 he made through illegal trades by a judge who blamed the attitudes of people like Kurland on the country’s financial collapse two years ago.

U.S. District Judge Victor Marrero said Kurland, a co-founder of New Castle Partners hedge fund in Manhattan, “frankly should have known better” than to join an inside trading scheme that led to the arrests of top executives including one-time billionaire Raj Rajaratnam.

“He had a choice as a leader of the financial industry. He could have led by example. Instead, he chose to follow. He became a joiner, surrendering to the spree of the financial market’s virtual mob mentality that nearly brought down this country’s financial industry in the quest for ever bigger and faster gains,” Marrero said.

Kurland, who had pleaded guilty to conspiracy to commit securities fraud and securities fraud, was among 11 people who have pleaded guilty in the case. Many of the others had agreed to cooperate with the government, a step which delays their sentencing.

Rajaratnam, the portfolio manager for the Galleon Group hedge fund, has pleaded not guilty and disputed government claims that he pocketed as much as $50 million through a network of cheating executives at financial firms and companies privy to inside information.

The judge criticized pleas for leniency on Kurland’s behalf on the grounds that he had a minimal role, that he did not benefit much financially, that others were more at fault and that there was no real harm to the markets.

Read the whole story >

CESR welcomes the report of the Financial Stability Forum (FSF) on Enhancing Market and Institutional Resilience published 7 April, and launches work to address some of its recommendations, as well as to implement some of the decisions taken by Europe’s Ministers at the informal ECOFIN Council of 4 and 5 April 2008. This action can therefore be seen as part of the response by CESR to issues raised by the current market turmoil. This work will be undertaken, where appropriate, in close co-ordination with our fellow Level 3 Committees covering banking, insurance and pensions (namely, CEBS and CEIOPS). The Chairman of CESR, Eddy Wymeersch noted:

“Europe’s securities regulators are currently assessing and instigating action which will contribute to the efforts being made to re-establish confidence in financial markets at a global level through IOSCO and the FSF. Today, as a first instance, we announce the launch of work in a number of key areas which will include, amongst others, finalising CESR’s work on credit rating agencies and intensifying existing efforts to co-ordinate on the investigation of market abuse. Further new work will be launched in the area of valuation of assets; market transparency and risk management by investment firms. In addition, in response to the particular request of the ECOFIN Council, CESR will develop a framework for a periodic contribution which will seek to identify major sources of potential risks in financial markets for the Financial Stability Table of the Economic and Financial Committee.”

…

Market abuse: CESR will seek to strengthen its current efforts to increase co-operation between its members in joint-investigations on possible cases of market abuse emerging during this period of market turbulence. At present an MOU exists to facilitate the sharing of information by Members; urgent issues groups are also established to co-ordinate and conduct joint investigations; and work has been undertaken to exchange experience and share approaches to investigations to improve best practice. Further work to review additional steps which might be taken to intensify these efforts will be conducted by CESR-Pol, chaired by Kurt Pribil the Chief Executive Officer of the Financial Market Authority (FMA) in Austria.

Market transparency: CESR will review the conclusions contained in its technical advice to the Commission on “non-equities market transparency” (published 9 August 2007 Ref. CESR/07- 284b). In particular, it will focus on aspects of post trade transparency for both retail and wholesale markets. This work will be conducted by the MiFID Expert Group, chaired by Jean- Paul Servais, Chairman of the Commission Bancaire, Financière et des Assurances (the CBFA), Belgium.

Read the whole press release …

CNBC’s  Carlo Dellaverson has an interesting view on insiders’ trading logic.

Sometimes a stock is so hot that you want to buy it wherever you can, as soon as you can, because it’s not going to go lower anytime soon. If you see insiders buying the stock when it’s at a 52-week high, that’s a clear sign that you want in, Cramer says. It’s rare, and it’s the exception rather than the rule, but pay attention when it happens. When insiders buy at the high, it’s a pretty good indication of their confidence in the business – and who knows the business better than the people running it?

Often, insiders buy small amounts of their stock to give the impression of confidence and to create an illusion that the company is doing better than it actually is. Be weary of this, Cramer says. The way to know if the insider buying is legit is when it’s big. If you see truly colossal insider buying, even if it isn’t at the high, then you should dig deeper. It’s the volume of the insider buying that declares its sincerity. And when an insider buys a truckload of his own stock at its high, it’s definitely arrogant – but it’s bankable.

Corporate insiders aren’t going to buy at the high unless they have some unshakeable conviction about their companies. Most investors know to wait for a pullback before pulling the trigger. But when insiders buy high, that generally means they don’t think there’s going to be a pullback. There’s nothing more bullish than that, Cramer says.

Bottom Line: When you see insider buying in a stock that’s at a 52-week high, Cramer thinks you should be buying too.

The Financial Services Authority (FSA) has published a method of measuring the cleanliness of UK financial markets. The methodology measures market cleanliness by looking at the extent to which share prices move ahead of the regulatory announcements that companies are required to make to the market.The methodology should enable the FSA to measure, over time, its success in tackling market abuse, one of its key aims. This is part of the FSA’s drive to establish key indicators that will help it understand better how successful it is at achieving the intended benefits of regulation.

Hector Sants, FSA Managing Director, said:

“Our future success in reducing market abuse should be measured not by gut feel or fines levied, but by using a robust, analytical tool that will stand the test of time. ‘The methodology we have developed gives us such a tool and is an important step forward in establishing the starting point against which the FSA’s future work in tackling market abuse should be judged.”

The analysis

The researchers analysed two kinds of market announcements: those relating to take-over bids in 2000 and 2004 and announcements about the trading performance of FTSE 350 listed companies between 1998 and 2003 – around 1500 announcements in total. They then examined announcements that led to a large or abnormal share price movement since these are the announcements most likely to contain information of use to an insider trader. They then assessed the proportion of such announcements that, in fact, were preceded by an apparent ‘informed price movement’ that could mean that some trading on unpublished information occurred.

Results

The analysis of FTSE350 announcements covers a period before the Financial Services and Markets Act (FSMA) came into effect, and a later period, when FSMA was in force but the FSA had yet to complete any enforcement action against market abuse. The analysis indicated that there was no change in market cleanliness in relation to announcements by FTSE 350 listed companies. The analysis of announcements relating to takeovers included 2004, when five misuse of information cases were completed, and showed that there was a small but statistically significant increase in informed price movements suggesting a deterioration in market cleanliness.

Hector Sants noted:

“The analysis shows that there was no improvement in market cleanliness in the period after the introduction of the FSA’s new powers, and before any high-profile enforcement cases were concluded. This suggests that visible enforcement action may be the key tool in our work to reduce market abuse.”

The first enforcement cases in relation to misuse of information under the new rules were concluded in 2004 and resulted in comparatively low fines. These are the only cases in the period analysed in this research. The results do not show exactly how much market abuse is going on but the researchers detected price movements which suggested that some informed trading may have taken place prior to 28.9% of the takeover announcements and 21.7% of the FTSE350 trading announcements which were identified as being most likely to contain information of use to an insider trader.

Future Work

The FSA intends to repeat the analysis later this year for later periods. If this future work shows a change in the level of the measure for takeover announcements of more than four percentage points (up or down), this would indicate a change in the frequency of informed trading. Similarly, a change in the FTSE350 announcements measure of more than eight percentage points (up or down) would indicate a change in the frequency of informed trading.

The FSA is keen to receive feedback on its methodology from interested parties.

The Occasional Paper on Measuring Market Cleanliness is available on the FSA’s website: http://www.fsa.gov.uk/pubs/occpapers/op23.pdf