Norwegian traders charged with manipulation

The Financial Times ^ | 8/19/2010 | Andrew Ward in Stockholm

Posted on Friday, August 20, 2010 11:33:51 AM by bruinbirdman

Two Norwegian day traders who apparently outwitted the electronic trading systems of a US broker have sparked a debate in the country over the growing influence of machines in financial markets.

The two men have been indicted in Norway on charges of market manipulation after allegedly tricking the electronic trading system of a big US broker into raising the price of shares on the Oslo Stock Exchange.

Many people in Norway have voiced admiration for the defendants and their apparent victory for man over machine.

Svend Egil Larsen and Peder Veiby could face up to six years in jail if found guilty of manipulating the trading system of Timber Hill, a unit of US-based Interactive Brokers, to artificially inflate share prices.

Norwegian police said the men had worked out a pattern of trading that caused the system to jack up prices, allowing them to sell at a profit.

Mr Larsen and Mr Veiby could not be reached by the Financial Times for comment but Mr Larsen told Norway’s Dagens Naeringsliv newspaper that he had not intentionally “tried to trick the robot”.

But he said that, in the course of his regular day trading, it became “fairly obvious” how the system behaved.

Many small investors have leapt to the defence of the accused men, lauding them for striking a blow against the automatic trading software that increasingly dominates global financial markets.

“Robots are designed to push the market, but when someone pushes the robots, it is suddenly a criminal offence,” wrote one commentator on the Dagens Naeringsliv internet forum.

The case comes amid increasing global scrutiny of automated trading systems after the so-called “flash crash” in May when a barrage of algorithmic sell orders caused US stocks to plunge.

Christian Stenberg, the Norwegian police attorney responsible for the case, said any admiration for the accused men was misplaced.

“This is a new kind of manipulation but it is still at the expense of other investors in the market,” he said.

The case involves 2,200 trades in three Norwegian industrial stocks on the relatively sleepy Oslo bourse between 2007 and 2008.

Irregular trading patterns were spotted by the stock exchange and referred to Norway’s financial regulator, which brought in the police.

Mr Veiby is alleged to have made about NKr250,000 ($46,000) from the alleged scam and Mr Larson NKr160,000.

Interactive Brokers did not respond to calls for comment.