Footsie fallout sparks German penalty

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The Independent Online

The London Stock Exchange is ready to fine Deutsche Bank for its share-dealing in Dimension Data, the South African computer services group, as part of its crackdown on irregular trading in the UK's top companies.

The London Stock Exchange is ready to fine Deutsche Bank for its share-dealing in Dimension Data, the South African computer services group, as part of its crackdown on irregular trading in the UK's top companies.

Deutsche is alleged to have driven up the price of Dimension on 15 September, the final trading day before it entered the FT-SE 100, in the knowledge that index-tracking funds would be forced to buy the company's shares in the day's closing auction.

The Independent on Sunday revealed last month that the LSE was investigating dealing in Dimension shares after they closed almost 50 per cent higher at 1000p at the end of the day's trading, before giving up the gains the following Monday.

The price action is thought to have cost a group of mainly American tracker funds £70m.

Fresh concern about the impact on share prices of tracker funds was raised on Monday by trading in WPP, the FT-SE 100 advertising group. The company last week finalised its acquisition of Young & Rubicam, its American rival, in a deal which will increase WPP's market capitalisation.

Thanks to this, FT-SE International, the organisation which governs the weightings which index tracker funds follow, on Monday afternoon announced its adjustment of WPP's weighting.

However, there have been complaints that some tracker funds were aware of the announcement's timing and were able to buy their required allotment of WPP shares in advance. One tracker fund manager said that an executive of Goldman Sachs, which also advised WPP on its acquisition of Y&R, had warned him of the imminent announcement.

Dealers who bought WPP shares when the reweighting was announced, in anticipation that the buying of tracker funds would drive the price higher, were disappointed to find that many had already adjusted their portfolios.

There is no suggestion that either Goldman Sachs or WPP acted improperly.

In the case of the Dimension share dealings, the LSE is understood to be planning the censure on the grounds that Deutsche acted incompetently in failing to prevent the sudden spike in the Dimension share price.

It is part of the LSE's plan to overhaul its system of closing auctions which was brought in five months ago following complaints of erratic end-of-day dealing. Deutsche Bank said that it had no knowledge of planned action by the Stock Exchange. The LSE declined to comment and will not publicly name Deutsche, even if it is censured.

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