THE CITY'S financial watchdog has found no evidence illegal dealing was behind a near-20 per cent one-day slump in the shares of HBOS earlier this year.
Drawing a line under the investigation, the Financial Services Authority said it could not establish whether false rumours were spread as part of a "concerted attempt" by individuals to profit by manipulating the bank's shares.
The collapse in the
bank's stock on 19 March followed rumours in the City that the Edinburgh-headquartered institution had been forced to seek financial help from the Bank of England.
According to the rumours, the BoE governor, Mervyn King, had cancelled Easter travel plans because HBOS was negotiating a Northern Rock-style bailout.
The market had also been unsettled the previous weekend by the dramatic rescue of US bank Bear Stearns.
The rumour-spreading was blamed on "short-sellers" – those who borrow stock in a company and sell it in the hope of buying it back later at a cheaper price, pocketing the difference as profit.
As a result, the FSA and BoE were forced into rare public statements of reassurance and the regulator launched an investigation.
But yesterday the FSA said in a statement: "Despite the likelihood that the rumours contributed to the fall in the share price, the FSA has not uncovered evidence that they were spread as part of a concerted attempt by individuals to profit by manipulating the share price."
The regulator added: "There is no doubt that false and damaging rumours were circulating about HBOS on 19 March, 2008 and these would have had some impact on HBOS' share price.
"It is difficult, however, to say how much impact, as the share price was also affected by the interaction of a number of other complex factors on the day."
These included a lack of liquidity and the effect of algorithmic trading strategies which exaggerated the share price fall.
The regulator said it spoke to a number of market participants at banks, broker dealers and hedge funds, scrutinised trading records, e-mails and messages during its inquiry.
The full article contains 356 words and appears in The Scotsman newspaper.
