FSA Report on False HBOS Rumours (in full)

Slow on the draw, I missed the Aug 1 release of FSA's Investigation into accusations that HBOS was torpedoed by hedge funds spreading malicious rumours. If you missed it too, FT-Alphaville has the detail here, but I'll save you the trouble and summarize it for you below.

10. Something went seriously wrong in the market that mid-March day in regards to HBOS share price moves.

9. Our research staff reconstructed the day's activity by looking at exchange time&sales, derivatives trades, emails, phone records, chat rooms, some internet porn (during our break) spoke with reporters, and consulted a psychic.

8. What we strikingly found out was that the stock price went down...a lot.

7. It was clearly the result of more sellers than buyers which made the HBOS price fall more than it would have if this hadn't been the case.

6. This was exacerbated by the fact the few people wanted to buy, and lots wanted to sell (or do nothing), following the manslaughter of Bear Stearns the week prior. In our view (as a non-regulator) this in entirely understandable.

5. Some of the selling was apparently caused by rumours of an unknown origin that were clearly malicious. If we ever catch them, we will hang them upside-down in the naughty-tree.

4. While in this instance, we didn't find any obviously guilty people as everyone had plausible excuses for their activity, nor did we find the so-called smoking gun, we did find a few computers that were culpable (the were Dell's apparently) as their algorithmic strategies sold when they saw others selling.

3. We DID confirm that when market participants are stressed and their nerves are frayed, rumours can have outsized impacts upon share prices.

2. Irrespective the outcome of this investigation, we will be watching you in the future. Watching is the operative word here, as it remains difficult to actually prove anything in such cases.

1. Most importantly, in order to deal with such situations in the future, we will be studying how to write better reports, and are resolved to improving our communication. This will give comfort to our constituency that they can safely remain here in London, and needn't move to Geneva.