The Capital Markets Authority (CMA) has taken enforcement action against Rodrick Muhoro, a bond trader, 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 Ksh 208 million being twice the amount of benefit Muhoro received from irregular trading and banned him from conducting bonds trading for a period of 10 years.
According to the investigations, Muhoro conspired with brokers to defraud investors in bond transactions undertaken between January 2016 and June 2017 through front running.
This happened when Muhoro colluded with fixed income dealers at brokerage firms through the creation of artificial arbitrage opportunities, thereby realising a capital gain of Ksh 104 million by taking advantage of the price differential before the client orders were executed.
The gains would later be shared between Muhoro and fixed income dealers at brokerage firms in contravention of provisions of the Capital Markets Act.
Front–running is a market manipulation scheme involving an unethical and illegal trading practice in which a broker with advance knowledge of a specific market orders with price differentials of a financial security for clients earns an arbitrage profit by placing an order for their own account or a person associated with the broker in advance of the client’s orders.
The Authority will refer the matter to the Director of Public Prosecution for consideration of criminal investigations on market manipulation; the Asset Recovery Agency to trace and recover assets allegedly bought with illegal capital gains; and the Institute of Certified Public Accountants of Kenya for consideration of disciplinary action for professional misconduct.