Bond trader fined Sh208m for fraud

The scheme involved collusion among fixed income dealers at investment banks, asset management firms and brokerage firms. [File, Standard]

Another bond trader has been fined Sh208 million by the Capital Markets Authority (CMA) for insider trading of State-issued bonds.

Rodrick Muhoro was yesterday fined for his role in the bond rigging scheme that involved the use of sensitive information to buy bonds when anticipating an order from the Government.

This enabled him to make a quick buck at the expense of other investors in what is called front-running.

CMA had in February fined former CBA Capital bond trader David Maena Sh166.9 million for supplying Muhoro with insider information on bond trades, which he used to front-run the market, bringing the total fine in the case to Sh374.9 million.

“Following conclusion of investigations with respect to allegation of irregular trading of government securities in 2016 and 2017, CMA has imposed a financial penalty of Sh208 million being twice the amount of benefit Mr Muhoro received from irregular trading,” CMA said. A whistle-blower helped CMA unravel the scheme involving collusion between fixed income dealers at investment banks, asset management firms and brokerage firms. The market players colluded with individual bond facility holders in bank custodial accounts to trade bonds ahead of orders placed by non-suspecting investing clients.

“Mr Muhoro colluded with fixed income dealers at brokerage firms through creation of artificial arbitrage opportunities, thereby realising a capital gain of Sh104 million by taking advantage of the price differential before the client orders were executed,” said CMA in a statement.

CMA used surveillance systems that helped track the gains shared between fixed income dealers and the bond facility owners.

The regulator said 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.

Muhoro was banned from conducting bonds trading for a period of 10 years.

CMA said it would refer the matter to the Director of Public Prosecution for consideration of criminal investigations on market manipulation.