We all know insider dealing is illegal, and so Du Jun (former investment banker of Morgan Stanley) was imposed a 7-year imprisonment term. But don't you think broker firms should be obliged to report insider dealing of their clients to the regulatory body (like the reporting of money laundering)?
Recently FSA fined Mark Lockwood, a former trading desk manager at a retail stockbroking firm, £20,000 for failing to observe proper standards of market conduct. Lockwood failed to identify and act on a suspicious client order that allowed the firm to be used to facilitate insider dealing. As a result of his failings the firm failed to identify the trade as suspicious and report it to the FSA.
Lockwood's misconduct related to his dealings with a client who sold shares in oil and gas exploration company Amerisur on 23 May 2007 - ahead of an announcement by the company of a placing of shares the next day. The client has been subject to separate FSA enforcement action for market abuse in relation to Amerisur shares. Lockwood was aware of the client's possession of inside information by means of telephone conversations with him.
Lockwood failed to identify that the transaction was being conducted on the basis of inside information, despite his own knowledge of the impending transaction and clear warning signals from the client. He failed to prevent the trade or alert his firm to the possibility that the trade was being conducted on the basis of inside information. As a result no Suspicious Transaction Report (STR) was submitted to the FSA and the trading only came to light because of a report submitted by another broker.
For details of the story, please refer to FSA's Final Notice.
I wonder if SFC would consider implementation of the STR regime for insider dealing and market manipulation in future.
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