Burford Capital Share Trading and Why No Transparency?

Burford Capital (BUR) was affected by a shorting attack from Muddy Waters (Carson Black) who have published several dossiers attacking their accounts. As I have said before, I have never had any interest, long or short, in the shares of that company but I have publicly questioned the business model, their corporate governance and the prudency of their accounts. But other investors take a different view of the company.

Burford have alleged that there was some manipulation of their share price taking place at the time of the shorting attack, i.e. market abuse by such methods as “spoofing and layering”. They went to court to force the LSE to disclose the share trades so that they could determine whether this was in fact the case and to identify who might have been doing it. The application was supported by a joint letter from ShareSoc and UKSA.

The High Court rejected the application on a number of grounds. For example because the FCA and LSE had already reviewed the matter and could not confirm the allegations.

ShareSoc director Paul de Gruchy has now published a blog article which covers the judgement. See: https://www.sharesoc.org/blog/regulations-and-law/slave-to-the-algorithm-burford-and-the-importance-of-maintaining-confidence-in-a-broken-system/

It is very good analysis of the problem of identifying market manipulation when the market is dominated by high frequency trading. For example it says: “An ordinary investor may wonder what strategies could be revealed by releasing the trading data in relation to a single company on two days. It appears that there is a genuine fear that “algorithmic” trading companies would have their secrets exposed by this information”; and: “This may look like market manipulation, but the LSE, who have a commercial interest in maintaining the income stream provided by high frequency, algorithmic trading, say it is “legitimate”. Indeed, it is a noticeable feature of the judgment that the judge appeared unconcerned by the clear conflict that the LSE has in being a commercial business seeking to maximise revenues with its role in identifying market manipulation. A cynic might say that the difference between “legitimate” and “illegitimate” market manipulation depends on the level of fees you pay to the gatekeeper”.

The share trading all took place some weeks ago. What damage could have been done by disclosure of the trades? The Court could have imposed confidentiality conditions to avoid wider public distribution if they had a mind to do so. The fact that the FCA have given it a whitewash hardly inspires confidence either as they have been notoriously inefficient in pursuing wrong-doing in financial markets.

We do not know whether there was any market manipulation taking place and we will never know as Burford is not going to appeal the judgement. That is a shame because transparency is all important in financial markets.

Investors do want to know when market manipulation is taking place and who is doing it. As Mr de Gruchy says: “It was hard to imagine how confidence in the markets could be further eroded. This judgment has managed to do so”. I completely support ShareSoc’s stance on this issue.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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