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FSA rules no foul play in HBoS rumours
Rumours about funding difficulties at HBoS were not spread as part of a concerted attempt by individuals to profit by manipulating the share price, the FSA has just ruled.
On 19 March 2008, the FSA announced it would be conducting an investigation into trading in HBoS following a sharp fall in its share price.
On 18 March 2008 the HBoS share price closed at £4.80p. Prior to the market opening and throughout the morning of 19 March 2008, various rumours circulated in the market that a British bank faced funding difficulties.
Several of the rumours identified HBoS by name: they contended the governor of the Bank of England had cancelled his Easter travel plans in order to resolve a liquidity problem at HBoS; and/or that the Bank of England was "bailing out" HBoS.
Following the opening of the market at 8am the HBoS share price initially rose two pence despite the rumours.
However, the share price started to fall from 8.30am and this fall accelerated sharply from 8.40am until an automated trading halt was hit at 8.43am with the share price at £4.40p.
When trading recommenced at 8.49am, the share price fell dramatically, hitting £3.98p at 8.52am - a fall of more than 17 per cent from the previous day's close.
HBoS, the Bank of England and the FSA all made public statements during the course of the day.
News agencies reported the Bank of England's denial that it had cancelled leave for its Monetary Policy Committee members. The FSA warned market participants against spreading false rumours and dealing on the back of them.
Many market commentators speculated, often by reference to allegedly specific emails and messages, that the fall in the HBoS share price was the result of unscrupulous traders who spread false rumours to make unjustified profits, having earlier short sold the shares.
FSA staff began to analyse trading in HBoS and contacting market participants and news organisations to determine whether a person or persons might have spread misleading, false or deceptive information regarding HBoS to profit from a reduction in its share price.
During the course of the investigation, FSA staff also interviewed a number of market participants at investment banks, broker dealers and hedge funds – including traders, senior management and compliance staff.
The FSA said this information allowed the investigation to view the development of the rumours over time and assess their impact on market sentiment, the market's response to the rumours and the factors contributing to the movement in the HBoS share price on the day.
In a statement just issued, the FSA said: "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."
