R (on the application of Fleurose) v Securities and Futures Authority Ltd and another

The claimant, Mr Fleurose had been employed by JP Morgan Securities Ltd, a member of the Securities and Futures Authority (SFA), as a senior cash arbitrage trader. The London Stock Exchange (LSE) carried out an investigation into allegations that, on 28th November, 1997 he had, acting with his immediate superior, manipulated the FTSE 100 index in order to ensure that JP Morgan Ltd did not have to make a payment under a binary option. Under the terms of the option JP Morgan Ltd would have had to pay out if both the FTSE 100 Index and the Standard & Poors (S&P) Index were higher at the end of the month than at the beginning. On 28th November, the final day of trading, the S&P Index was significantly higher than its opening level but the FTSE 100 index was near the critical level at or below which JP Morgan Ltd would be relieved of its obligation to pay approximately £475,000 under the option. The applicant entered a wave of automated ‘sell’ orders in stocks in the leading five companies of the FTSE 100 list in the final eight minutes of trading of 28th November. The total value of those orders amounted to £11,247,525 and the ‘sell’ orders entered in the final six seconds of trading were at stated prices well below the market levels at the time. The FTSE 100 Index reacted by falling below the critical level. An immediate investigation into the sudden late fall in the Index was launched by the London Stock Exchange which attributed it to trading activity by JP Morgan Ltd. The firm conducted its own investigation and acknowledged that it had, through the activities of the Equity Derivatives Trading group (Mr Fleurose's group) breached Rule 2.10 of the London Stock Exchange Rules which prohibited member firms from doing an act or engaging in a course of conduct with the sole intention of moving the Index value. The firm was fined £350,000 by the London Stock Exchange. Mr Fleurose himself was not subject to the disciplinary jurisdiction of the London Stock Exchange but he was to that of the Securities and Futures Authority (SFA) as one of its Registered Representatives, along with his immediate superior.