FCA Fines Fund Manager £32,000 for Attempts to Drive Down IPO Price
The FCA fined a fund manager, Paul Stephany, at Newton Investment Management Limited £32,000 for encouraging investors at competitor firms to cap their orders in relation to the initial public offering of On the Beach Group plc.
The Newton fund manager attempted to persuade competitor investors, through a variety of channels (email, phone call and chat), to collude and drive down prices using their collective power, thereby undermining the proper price formation process. The FCA found that the fund manager had acted in contravention of its rules, as well as Newton’s internal policies and procedures.
While Stephany had run a brief online search into the relevant codes and whether his actions would contravene them, the FCA did not find this to be a sufficient exercise of due care, skill and diligence. The FCA also found Stephany had made similar attempts with regard to a placing by Market Tech Holdings Limited in 2015.
The Final Notice highlighted that the price formation process is vitally important and that prices are expected to be fair and reflect genuine market demand. Of particular interest is Annex B, which sets out the fund manager’s representations and the FCA’s conclusions:
- The fund manager submitted that there is not a clear distinction between information sharing and influencing. The FCA did not consider this point in depth but was clear that the fund manager had acted with a view to influence;
- The FCA set out that, in a properly functioning IPO, fund managers at competitor firms do not use (or seek to use) their collective power against issuers;
- The fund manager said that there was no clear consensus in the market as to the existence of a market standard that would render his conduct a breach. The FCA responded that even if the concert party rules did not apply specifically to his conduct, the rules are the manifestation of an underlying principle;
- He also suggested that information sharing was part and parcel of the price formation process. Again, the FCA did not consider the point in detail but concluded there is a difference between discussing valuations/ disclosing information and seeking to influence investors.