THE FINANCIAL Regulator has started an inquiry into "false and misleading rumours" about the fiscal health of two Irish financial institutions in light of unusual volatility in their share prices.
The main thrust of the investigation is likely to be into share dealings in Anglo Irish Bank, whose stock lost 15 per cent of its value on Monday in market turmoil after the near-collapse of the US investment bank Bear Stearns.
Trades in Irish Life & Permanent shares are also being examined, it is understood.
The inquiry centres on dealings by a number of stock market investors in London and Dublin. The investors in question include certain hedge funds, companies that specialise in the use of high-risk investment techniques to maximise their profit from share dealings.
News of the regulator's inquiry lifted the Irish stock market, which closed 5.47 per cent stronger last night after sharp losses earlier in the week. Irish financial stocks, which have suffered substantial declines in recent months mainly because of concern about the economic slowdown, gained 8.84 per cent. Shares in Anglo Irish Bank gained almost 14 per cent, while Irish Life & Permanent rose by 7.25 per cent. Bank of Ireland added almost 10 per cent and AIB was 6.75 per cent stronger by the close.
"The Financial Regulator is concerned that false and misleading rumours circulating in financial markets in recent days are connected to unusual trading patterns in Irish shares," said a statement. "The Financial Regulator is examining certain transactions in this regard."
The regulator's intervention follows a similar investigation by its British counterpart, the Financial Services Authority (FSA), which is examining unusual share dealings in the banking group HBOS.
Con Horan, prudential director of the regulator, said the organisation was "working closely" with other regulators including the FSA in relation to its concerns.
"Market participants who take unfair advantage by spreading false rumours while trading on the basis of those rumours are in breach of market abuse regulations and we will actively pursue those who may be engaged in this," he said.
John Hurley, governor of the Central Bank and Financial Services Authority of Ireland, said he strongly supported the action taken by the regulator. "As I have outlined in recent statements, the Irish banking sector remains robust and has no material exposures to the subprime market."
At issue in some of the investigations is whether such funds engaged in a form of market activity known as "short-selling". In this practice, an investor borrows stock in a company and sells it in the hope of buying it back at a lower price later to return it to the original owner. The investor receives the difference as profit.
The regulator can privately reprimand parties found to have engaged in market abuse or make a public sanction and issue fines of up to €2.5 million. "Our preference in pursuing market abuse sanctions is to make the result public," said a spokeswoman for the regulator.
