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A former Bank of America Merrill Lynch bond trader has been fined £60,000 for manipulating the price of Dutch state loans in a case of so-called algo baiting — the first time the UK’s financial watchdog has issued a fine for the practice in fixed income markets.
Paul Walter, who was an experienced bond trader at BAML, engaged in market abuse by taking advantage of algorithmic trading on electronic trading platform BrokerTec, the Financial Conduct Authority said on Wednesday.
Mr Walter entered bids for Dutch state loans that pushed up their price. Then, when other algorithmic trades followed him in response and raised their bids, Mr Walter sold to them and cancelled his quote. This happened 11 times between July and August 2014 while he was working for the bank, the FCA said, while on one occasion he did the opposite. He netted a total of €22,000 profit from this “algo baiting”.
Mark Steward, the head of FCA enforcement, said:
Market manipulation undermines market integrity and confidence. The FCA will be vigilant in detecting abusive practices and will take robust action to protect issuers and participants from all over the world from the harm caused by such abuse.
Mr Walter did not know that what he was doing was market abuse, but the FCA still found him negligent for not realising this.
Mr Walter’s lawyer was not immediately available to comment and BAML declined to comment.
According to the FCA’s register of regulated individuals, Mr Walter became inactive in August 2014 and previously worked at UBS.