Stock Exchange plans crackdown on insiders: Authorities move to stop long-term slide into disrepute

THE Stock Exchange yesterday proposed tough action to deal with leaks of price-sensitive information, including the threat of a 24- hour halt to trading in the shares affected.

The exchange said there was a danger of the market falling into long-term disrepute because of a growing belief that the odds favoured insiders and market manipulators.

Michael Lawrence, chief executive, said: 'What we are trying to do is to put a clamp on it to protect the innocent.'

Mr Lawrence has asked members for views on a four-stage plan by which the exchange would react to evidence of leaks with gradually escalating penalties.

If the exchange's computers show a share price has jumped suspiciously far - compared with its normal behaviour - the first stage could be to give it 'indicative' status while investigations continued.

This means market-makers are not obliged to stick to the prices they put on their screens.

An alternative first stage would be to issue an alert to the market to warn investors that the exchange is investigating unusual price movements.

Stage two could be to halt trading in the shares for 24 hours where there is strong evidence that the movement is due to a leak of price-sensitive information. This would allow a company - which might not be to blame - to make an announcement. If there is no agreement on what to do within 24 hours, a full suspension could be imposed.

The exchange suggested that if there was still an impasse after 24 hours it could make the announcement itself, rather than the company, as an alternative to a full suspension.

A discussion document sent to members suggested that the exchange should have powers to require member firms to reverse bargains where there is reason to believe they have been carried out with the benefit of unpublished, price-sensitive information.

Although Mr Lawrence acknowledged this raised a number of legal and other difficulties in practice, he said it would serve as a strong deterrent, as the gain from illicit actions would be lost.

Perhaps the most controversial proposal is to publish the names of firms that have been dealing in the suspect shares, and the price and size of transactions in the period leading up to the announcement of price-sensitive information.

Mr Lawrence admitted the new proposals would probably not catch insider traders, as they usually bought and sold without moving the price and were in and out of the market early on.

But he said his plans would deal with the disorderly effects that resulted as leaked information spread in a chain reaction through the market, putting ordinary investors at a disadvantage.

There have been 7,000 suspicious price jumps over the past 12 months, although in 80 per cent of these the exchange has been given acceptable explanations.

Further investigation in 130 cases required action by the exchange. Mr Lawrence put a 50 per cent jump in the number of investigations this year down to improved techniques for picking up unusual price movements.