Swiss Bank faces discipline over Trafalgar

SFA investigation questions Chinese walls

The Securities and Futures Authority is seeking to discipline Swiss Bank Corporation over its controversial role advising Trafalgar House in the attempted pounds 1.2bn hostile takeover of Northern Electric earlier this year.

The Department of Trade and Industry and the Serious Fraud Office have decided not to pursue the case, which means that SBC will not face criminal prosecution under insider trading laws.

But it is believed that the SFA will be seeking both to fine and censure SBC on the basis of the detailed investigation it has already carried out.

The DTI, which alone has the powers to conduct a criminal prosecution on insider trading, appears to have decided that the information compiled by the SFA would not justify going to court. The SFO has taken a similar view, sources said.

The investigation has centred on the question of the viability of Chinese walls in an integrated investment house such as SBC.

As part of its tactics for the takeover of Northern Electric, SBC sold contracts for difference to Trafalgar House which guaranteed it a profit should the share price in the regional electricity company rise.

To cover its own exposure to these contracts, SBC's market-makers bought shares in a number of other regional electricity companies (RECs), whose shares were likely to be boosted in the event of a takeover bid in the sector.

In the event, once news of the takeover emerged, shares throughout the sector jumped sharply, prompting widespread controversy over SBC's tactics.

The SFA investigation is believed to have examined the possibility of unethical behaviour by SBC in its treatment of those shareholders from whom it bought REC shares, insofar as they may have been disadvantaged by any possible prior knowledge of a takeover bid.

The SFA is also believed to be considering disciplinary action against SBC for having allegedly breached a statutory law on insider trading. Even though there is to be no criminal prosecution, the SFA can still accuse a member firm of insider trading under its own rules, government sources suggested.

The SFA refused yesterday to comment on its investigation into SBC.

Should SBC be disciplined, as regulatory sources suggested is likely, this will involve lengthy negotiations between the SFA and SBC's formidable posse of lawyers, who have so far been very active in this affair, and parried the investigators already on several occasions.

The Stock Exchange quickly cleared SBC of any breach of its rules. However, in response to the widespread market concern expressed at the time of the takeover, it is in the process of drawing up changes to these rules on the use of derivatives and undisclosed large market positions in takeovers, following detailed consultation of its members and big institutional investors.

Regulators conceded that SBC's innovative use of derivatives had exposed a weakness, if not a gap, in the rules governing takeovers.

Separately, the Bank of England yesterday said it was reviewing its memorandum of understanding with the SFA with the aim of ending the regulatory confusion exposed by the Barings collapse.

"To co-operate better each has to be much clearer about its responsibilities. We knew what we were doing, but it seems parts of the Bank had different ideas of what was going on. We need to clear up this confusion," Richard Farrant, chief executive of the SFA, said.

The SFA is still investigating a number of former Barings executives.

"They are unlikely to get a job in the City unless we are fully satisfied they are capable of holding any position for which they may apply," Mr Farrant said.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones