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The costs of chasing insiders

Has the FSA bitten off more than it can chew?1194.jpg

Despite news that up to one-third of takeover deals could have seen insider trading, the regulator’s final proposals to tape conversations relating to sales have hit a wall of criticism from many parts of the industry. One man in particular - David Bennett, chief executive of the Association of Private Client Investment Managers and Stockbrokers - has been spitting feathers.

As he explained in an Investment Adviser comment piece this week, the main gripe, as usual, is with cost.

In its original consultation, the FSA estimated the costs of its proposals at £3-4m for one-off costs and £3.5-4.5m for annual ongoing costs. By the time the final rules were published, the FSA conceded these figures were too low and suggested instead £9-14m for one-off costs and £6-11m for annual ongoing costs.

But costs could continue to rise, he warns.

The revised figures are the regulator’s own “best estimates”, which are themselves considerably lower than cost estimates supplied by firms in response to a FSA questionnaire.

More concerning than this, Mr Bennett argues, is the question mark over whether the FSA’s chosen weapons in the fight against market abuse are the right ones.

While the new rules are likely to mean more inadvertent and “plain dumb” bad behaviour is identified, it is unlike to capture the types of deliberate and systematic manipulation that is so damaging to market health.

Individuals engaged in these sorts of activities will now know exactly which communication devices are being recorded and will be able to shift their business to unrecorded means of communication such as personal mobiles, home phone numbers, instant messaging and chat accounts and, of course, that most obvious of fall backs, a quick visit to the local pub.

The problem is, of course, the FSA has no intention of changing the proposals. They are due to come into force next March. And Mr Bennett, along with the rest of us, will have to put up with them.

Related links:

Hammering out market abuse at the industry’s expense - Investment Adviser
Sunset for RINGA? Or a regulatory reprieve? - FT Alphaville
Legalize insider trading - Stumbling and Mumbling

Catherine Neilan, Investment Adviser

This entry was posted by FT Alphaville on Thursday, May 8th, 2008 at 13:12 and is filed under Uncategorised. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. May 08   15:18 Posted by Monkey [report]

    I like the idea of being a financial bounty hunter. Need an impressive and intimatidating handle though. Monkey not quite fearsome enough. Perhaps the Simian!

    On a more serious note the FSA need to do something - why can’t they just follow the SEC’s lead? They are a little draconian maybe but at least they actually seem to be able to punish market abuse occassionally.

  2. May 08   15:14 Posted by Paul Murphy [report]

    A bounty hunt Mr Cox!?

    http://ftalphaville.ft.com/blog/2008/03/28/11893/what-next-internment/

  3. May 08   14:32 Posted by VP [report]

    RMC 2004 in fact.

    But whilst we’re on leaks/insider trading - what about the big move on big volume on ETI yest, that forced out an RNS re REIT.

    The FSA need to do something about their status as a laughing-stock; a few successful prosecutions might help. It might be a thankless task trying to crack down on insider trading, but the rubbish they came out with over the HBOS affair hardly helps.

  4. May 08   14:22 Posted by VP [report]

    All very well GCox, but would you trust the FSA to run a p*ss-up in a brewery? I wouldn’t. Nor the LSE.

    The notion that “nearly a third of takeover deals are leaked” is totally laughable. I struggle to remember the last one that wasn’t - almost all come out on RNS after leaks to the press or shareprice movement (MNR today being a good example).

    RMC back in I think 2002 was the last total surprise one I can remember.

  5. May 08   14:08 Posted by G Cox [report]

    This method may not work , but the cost should not be an issues.

    Putting say 10p on every Uk equity related CFD and spread bet deal would raise more than enough to launch an assault on insiders that would have them on the defensive ( about 3 times the max estimate from the LSE).

    A reward system could be brought in as well to induce some to spill beans. Insider trading is just as much theft as , say, fraudulent insurance claims and should be treated seriously as well it also disrupt the orderly functioning of the system.

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