The Dubai Financial Services Authority (DFSA) today announced enforcement of sanctions against Shuaa Capital relating to alleged market manipulation earlier this year.

The sanctions include financial penalties totaling $950,000 together with other remedial actions agreed to by Shuaa Capital pursuant to an Enforceable Undertaking made with the DFSA, said a statement.

The announcement follows an extensive investigation by the DFSA into suspicious trading in the shares of DP World on the Dubai International Financial Exchange (DIFX) at the end of March 2008.

The trading was carried out by Shuaa Capital International Limited (a firm licensed by the DFSA) at the direction of its parent firm Shuaa Capital PSC (collectively called Shuaa Capital). The trading was referred to the DFSA by the DIFX in April 2008.

The DFSA has determined that Shuaa Capital intentionally set about to raise the closing price of DP World shares on March 31, 2008 so that it could mark up the book value of its proprietary portfolio in those shares for accounting purposes, the DFSA statement said.

'It did so by standing in the market during the closing minutes of trading with bid prices well above those at which DP World shares had been trading in the ordinary course of business,' it said.

The DFSA has also determined that Shuaa Capital obstructed its investigation.

DFSA’s chief executive David Knott, said: “The manipulation of markets for ulterior motives is a classic form of market abuse that is outlawed in all well regulated exchange traded markets. Such practices run contrary to the maintenance of orderly markets and efficient price discovery in traded securities. In this case Shuaa Capital artificially inflated the price of DP World shares and generated a false market in those shares.'

Both the DFSA and the DIFX are totally committed to ensuring that investors on the DIFX can have confidence in the integrity of the market, he said.

'The seriousness of this offence was exacerbated by Shuaa Capital’s obstruction of the DFSA’s investigation. This conduct has prolonged resolution of the investigation and is inconsistent with the standards of behaviour that DFSA expects from regulated firms within the DIFC.

'The DFSA emphasises that DP World is entirely blameless in this matter and is not implicated in any part of the misconduct,” the statement said.

The sanctions

Shuaa Capital has entered into an Enforceable Undertaking with the DFSA under which it has accepted that it failed to maintain proper risk management controls in relation to the misconduct. It is required by the terms of the Enforceable Undertaking to:

• Appoint a new chief risk management officer reporting direct to the chief executive of Shuaa Capital;

• Commission and implement the recommendations of an independent risk management review;

• Undertake training of its relevant staff in the requirements of the laws and regulations applying within the Dubai International Financial Centre (DIFC);

• Pay to the DFSA a penalty of $ 850,000 in relation to the alleged market manipulation; and

• Pay to the DFSA a penalty of $100,000 in relation to the alleged obstruction of the DFSA’s investigation.

Trading Details

Details of the transactions investigated by the DFSA:

1. At 16:42:40 hours, on March 31, 2008, 2 minutes and 20 seconds before the close of continuous trading on the DIFX, the last traded price of DP World shares on DIFX was $0.87 (“the last traded price”).

2. During the last 2 minutes and 20 seconds of continuous trading on DIFX, Shuaa Capital entered twelve (12) separate bids to purchase 1,000,000 shares each at prices between $0.89 and $0.98 per share.

3. By the time continuous trading on the DIFX had closed 2 minutes and 20 seconds later, Shuaa Capital had bought, for its proprietary portfolio, 12,000,000 DP World shares, at prices between $0.88 and $0. 97.

4. In the closing auction period on March 31, 2008 Shuaa Capital purchased for its proprietary portfolio, an additional 3 million DP World shares. The final price of DP World shares at the close of the market on March 31, 2008 was $0.95.

5. The price of $0.95 per DP World share represented an increase of 9.2 per cent on the last traded price.  - TradeArabia News Service