No individual prosecutions over HBOS 'market abuse'

A market abuse inquiry launched by the City regulator following the spectacular collapse of HBOS shares in March will not result in action being taken against any individual, it was reported today.

While the Financial Services Authority (FSA) is said to believe that market abuse lay behind the 17% fall in HBOS’s share price, the watchdog has insufficient evidence to take further steps, the Sunday Telegraph said.

Rumours of a funding crisis sparked the slide in Britain’s biggest mortgage lender, adding to City nerves after the collapse of Northern Rock.

HBOS described the speculation as “malicious”, prompting the inquiry and leading the FSA to warn that it would not tolerate traders starting and then dealing off false rumours.

The FSA is expected to publish its formal findings from the HBOS inquiry by the middle of next month. It declined to comment today.

The investigation is said to have included the provision of telephone and email data by every investment bank that traded in HBOS shares that day. The FSA also scrutinised every short trade, which hedge funds make when they believe a share price will fall.

A draft copy of the FSA’s findings is understood to say that while the regulator believes that market abuse was to blame for the fall, there is insufficient evidence to take further action.

However, it believes the comprehensive nature of its inquiry will have an effect on those tempted to spread false rumours about a company.

Last Friday, new FSA rules came into force obliging short-sellers to disclose their trading positions in companies which are in the middle of rights issues. HBOS, which is currently asking shareholders for £4bn (€5bn), saw its shares fall below its 275p rights issue price on Friday, despite the new guidelines.