It's a week for tales of failed trading scams. First there were the convicted insider traders who chewed up post-it notes with trading tips written on them. Now we have a foiled attempt to scam the Bank of England by Mark Stevenson, an ex-senior bond trader at Credit Suisse and RBS.
A note from the Financial Conduct Authority reveals that Stevenson's scam went a little like this:
- In July 2011, he had an inkling the Bank of England might engage in another round of quantitative easing (QE) and started buying a few gilts so that he could sell them at a profit if QE happened as he expected.
- On October 6th, the Bank of England confirmed its QE plans.
- On October 10th. Stevenson bought a lot of gilts between 9am and 2.30pm. In total, he amassed £1.2bn of gilt holdings, accounted for 92% of gilt turnover that day and pushed the price up significantly. At one point, it seems Stevensons's store of gilts were worth £1.7bn.
- Come 2.30pm on October 10th, Stevenson stopped buying and seemed to be ready to start selling. Specifically, he wanted to sell to the Bank of England, which was by then engaged in its QE operations. Unfortunately, the Bank of England saw through Stevenson's intentions within 40 minutes. After engaging its superior intelligence, it decided not to buy his particular gilts during that bout of quantitative easing. The price of Stevenson's gilts plummeted.
As a clear case of market manipulation, Stevenson's scam was banned under the FCA's code of conduct. Not only did his £500m profit (which should really have earned him a bonus of at least £10m*) disappear, but the FCA has fined him personally £663k (and would have fined him £950k had he not cooperated). Stevenson also lost his job at Credit Suisse in October 2012 and hasn't worked in banking since. Nor will he work in banking again: the regulator has banned him from the industry. He's also been roundly criticized for attempting to scam the British taxpayer for personal gain. Not bad for a day's work in October.
*Stevenson reportedly earned £2.4m in salary and bonus in the year preceding his stunt.