Blog
Unit 1 Micro: Insider Information and Market Failure
3rd April 2012
One of the top bankers in the City of London has been fined £450,000 by the Financial Services Authority (FSA) for providing inside information to a prospective client. This is an example of asymmetric information and market failure. Inside information about likely deals in the markets is extremely valuable and the FSA is an agency of government given a key role of monitoring the behaviour of market participants to ensure that it is not abused.
Here is one of the offending emails
“I thought I would update you on discussions that have been going on with a potential acquirer of Tony Buckingham’s business. Tony, advised by myself, has deferred engaging with the client until Thursday of next week although we know they are very excited about the recent drilling results of Heritage Oil … I believe that the offer will come in in the current difficult market conditions at £3.50-£4.00 per share. I am not trying to force your hand, just wanted to make you aware of what is happening”.
Inside information is a common feature of many markets - from share-trading to betting on the racecourses - this case is going to a tribunal
BBC News: FSA fines JP Morgan banker Ian Hannam for market abuse
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.