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Home News & Events BANKING LAW NEWS: Block Trading prompts European Banking Regulators’ interests

BANKING LAW NEWS: Block Trading prompts European Banking Regulators’ interests

Saturday, 27 April 2013 00:11

Block trading – a practice which involves the purchase of “a block of shares” by a banking institution at a discount and then, reselling it on the market and which indeed, accounts for one of the fastest growing segment of the equity capital market – is said to be soon under scrutiny of the market regulators on banking safety. Those in the investment business have remarked that there exists an alleged market abuse primarily amongst certain European Banks by-passing the system. The prevailing circumstances have led to an accumulation of shares worth millions of Euros purchased by banking institutions which cannot always be traded at a profit.

According to the Financial Times of April 20-21, 2013, in an article entitled “Block trading failures intensify debate over risk” by Alexandra Stevenson, “banks are solicited to take part in a blind auction to underwrite a block sale on behalf of a shareholder … [and] if the winning bank prices the shares too ‘tight’ meaning at too narrow a discount from the company’s last trading share price, it can be left holding a large stake it is unable to shift at a profit”, citing Barclays as the most recent bank to suffer such consequences after it ended up with some $ 900 Million worth of shares in Dutch cable company Ziggo. As a consequence, Barclays ended up with a fourteen per centum (14%) of Ziggo’s shareholding, prompting interests from Prudential Regulation Authority, a specialized division within the Bank of England which has inherited the power to regulate bank safety from the UK Financial Services Authority.