The Capital Markets Authority (CMA) has fined a Nairobi bonds trader a total of Sh208 million for engaging in insider trading in Treasury bonds between 2016 and 2017.
CMA said Wednesday in a statement that Mr Rodrick Muhoro, a bond trader has been found guilty of dealing with privileged (non-public) information on bond trades, which he used to front-run the market and make dual trades in order to profit at the expense of other investors.
The financial penalty is twice the amount of benefit that Mr Muhoro received from the irregular trading in the fixed income securities that CMA said amounted to Sh104 million.
The CMA said the illegal trades were done through creation of artificial arbitrage opportunities based on privileged knowledge of customer orders.
“CMA has imposed a financial penalty of Sh208 million being twice the amount of benefit Mr Muhoro received from irregular trading and banned him from conducting bonds trading for a period of 10 years,” the CMA said.
“Mr Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front running.”
The CMA said Mr Muhoro colluded with fixed income dealers at brokerage firms through creation of artificial arbitrage opportunities, thereby realising a capital gain of Sh104 million.
The regulator said Mr Muhoro in the well calculated would take advantage of the price differential before the client orders were executed.
“The gains would later be shared between Mr Muhoro and fixed income dealers at brokerage firms in contravention of provisions of the Capital Markets Act,” added the CMA.
CMA said it had referred Mr Muhoro to the Director of Public Prosecution (DPP) Mr Noordin Haji to consider criminal investigations on the market manipulation as well as to the Asset Recovery Agency (ARA) to trace assets allegedly bought with the illegal capital gains by Mr Muhoro.
In February this year, the CMA fined a former CBA Capital executive David Maena a total of Sh166.9 million for engaging in the same insider trading scheme in Treasury bonds between 2016 and 2017.
The irregular trades, known as front running, arise when a crooked dealer or trader uses knowledge of customers’ orders to buy and sell to trade in their own accounts ahead of the market.
It happens when rogue dealers insert themselves or another party in a deal, to buy bonds from an investor who is selling at a lower price.
Such a trader then goes on to sell the same bonds to another person at a higher price and pockets the gain, often within a day (dual trading).