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M&A: Increase in abnormal stock trading despite clampdown

Research shows an increase in abnormal stock trading in the UK despite recent FSA clampdown. Some of the irregular share price movements may be indicators of insider trading.

A new study by the UK market regulator reveals that in nearly 30% of UK M&A deals in 2004 there were irregular share price movements, pointing to insider trading before the deals’ announcement. The extent of such abnormal price movements has apparently been increasing over the past few years. The Financial Services Authority study, Measuring market cleanliness, pointed out that in 2000 only 21% of takeovers were preceded by suspicious stock trading.

The increase in abnormal stock trading in 2004 occurred despite a FSA clampdown resulting in fines for wrongdoers. The FSA concedes that its efforts had had “a limited deterrent effect”. However, the regulator said the appearance of indications of insider trading in the FTSE350 companies surveyed did not conclusively prove that it had occurred.

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