Bond trader fined Sh208 million for rigging

Capital Markets Authority boss Paul Muthaura

NAIROBI, KENYA: Case on the rigging of bonds has given the Capital Markets Authority Sh374.9 million in fines on the conspirators.

The scheme-involved use of sensitive information to buy bonds when anticipating an order from the government, quickly making an extra buck at the expense of other investors called front running.

Capital Markets Authority on Wednesday slapped Rodrick Muhoro, a bond trader with a Sh208 million fine for his role in the scheme.

CMA had also previously fined former CBA Capital bond trader, David Maena Sh166.9 million.

“Following the conclusion of investigations with respect to the 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 whistleblower 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 the 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,” CMA said.

Mr. Maena apparently supplied Muhoro with insider information on bond trades, which he used to front-run the market and make dual trades in order to benefit at the expense of other investors.

CMA also 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 Muhoro and fixed income dealers at brokerage firms in contravention of provisions of the Capital Markets Act.