UBS pays pounds 20,000 fine after breach of SFA rules

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The Independent Online
UBS, the Swiss investment bank, was yesterday fined pounds 20,000 by the Securities and Futures Authority after the discovery that two of its staff inflated the value of their trading positions by pounds 8.9m during 1994.

The paper loss caused no significant risk to UBS's business, but is an embarrassment in the wake of a series of other disasters caused by traders hiding their dealing positions from their managers - the most notorious being Nick Leeson, whose actions broke Barings.

James Keen, a former convertibles and warrants trader at UBS, contested his case at an SFA tribunal but failed to avert a reprimand, a pounds 2,000 fine and an order to pay costs of pounds 6,000.

His former boss Mark Larkin, an American who was head of convertibles and warrants, has been fined pounds 10,000, ordered to pay pounds 4,500 in costs and expelled from the SFA's register of managers.

The SFA first instigated proceedings against UBS, Mr Keen and Mr Larkin in June and July 1995. But because Mr Keen took the proceedings to tribunal the affair has not become public until now.

Both men were sacked by UBS in 1994. Mr Keen, now 29, has not been barred from the SFA's register of traders. He was briefly registered with another firm, Tradition, until February 1995 but is no longer on the SFA's register. Mr Larkin is also not on any of the SFA's registers and details of the action against him have been passed to the Securities and Exchange Commission, the US regulator.

"UBS has admitted that it failed between March and May 1994 speedily to identify and remedy the fact that a number of positions held by the convertibles and warrants desk had been mismarked, causing it to be in breach of SFA's rules on marking to market," the SFA said.

UBS, which was also required to pay the SFA's costs of pounds 8,000, passed on the details of the problem to the regulator. The SFA took this, and other factors such as the bank's decision to strengthen its review procedures, into account.

"As at 12 May 1994, when the positions were revalued in accordance with SFA's rules, there was a divergence of pounds 8.9m between the level at which the positions had been marked and their market value," the SFA said.

The problems stem from Mr Keen's convertible bonds position, which was badly hit when world bond markets collapsed in February 1994. He appears to have believed the market would move back in his favour and may have been fudging his positions while he waited for the markets to recover.

But, under SFA rules, trades must be accounted for at their current market value and, according to the regulator, Mr Keen breached these rules on "marking-to-market" between February and April 1994.

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