I am never very comfortable when ‘gamekeepers turn poachers!’ Mark Garnier MP, the former distinguished fund manager, who is also a very active and vociferous member of the Treasury Select Committee, dropped a bomb shell on the Treasury Select Committee yesterday, suggesting that dealers and brokers routinely fiddled prices at the end of each day’s trading. The TSC chairman, Andrew Tyrie, Mr Garnier and the Committee demanded that the FCA had the drains up with a full investigation. I am sure Andrew Bailey and Paul Fisher will oblige. Markets have been through sufficient abuse allegations. Consequently nothing should be ignored.

However are you certain about the quality of your evidence, Mr Garnier? Forgive my impertinence, but I must defend the smaller market practitioner’s corner. You were a market luminary many years ago and price manipulation practices may have seen evidence of malpractice at your role as a fund manager, but I would be very surprised if you were to find much endorsement for your allegations amongst market operators today.

Pre-Big-Bang (1986), when the jobber/broker relationship ruled OK, I am sure with ‘the shake of a hand,’ when very limited technological facilities were available, prices at the end of the day were agreed on a conveniently mutual basis. I suspect there was temptation to indulge in skulduggery. Who knows? That’s ancient history now.

However the situation today requires much closer scrutiny. The LSE, though is still solely used to arbitrate the agreed closing prices, it only consummates about 40% of business done in UK based equities. There are platforms such as BATS, ITG Group, Deutsche Boerse and many others around the world that are involved in executing a measurable number of trades in UK equities on a daily basis. So to suggest that equity prices today are manipulated at the end of each day, I believe those alleged practices may be far from the mark.

For closing equity prices to be manipulated would be very difficult. Firstly there are so many exchanges/platforms used. Secondly and most important of all, about 40% of the daily turnover on UK equities comes from programme and auction trades – much of it towards the end of a day. Now, our course, we are talking about a market – good old fashioned supply and demand. Sometimes the final deals are not completed until 4.40pm. Consequently sometimes there are more buyers than sellers and vice versa – hence price gyration and volatility – That’s a market – not price manipulation or fixing! The manipulation of LIBOR, gold prices and specific ‘dark pool’ deals is likely to have criminal connotations. That is a world away from UK equities – also it is illegal!

When there are illegal transgressions, then the perpetrators must pay – fines, prison; whatever criteria meet the crime. However I get the impression, that with an election due up in a year, it is now ‘open season’ on the City of London. We are easy prey! Politicians are looking for skeletons in the cupboard that may not be there.

These are David Buik’s personal views

Twitter – @truemagic68 David Buik

Market Commentator D +44 (0)20 7886 2775Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom

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