An investigation into whether rumour-mongering amounted to market manipulation in Britain has come up empty.

On March 19, Britain’s Financial Services Authority announced that it would be conducting an investigation into trading in financial firm, HBOS, following a sharp fall in its share price amid talk that it was in danger of failing. On Friday, the FSA announced the results of that investigation.

The investigation began after HBOS’s share price was pummelled in the days following the collapse of Bear Stearns in the U.S. At the time, rumours suggested that the bank would require a bailout by the British central bank.

“Many market commentators speculated, often by reference to allegedly specific e-mails and messages, that the fall in the HBOS share price was the result of unscrupulous traders who spread false rumours to make unjustified profits, having earlier short sold the shares,” the FSA
says.

“There is no doubt that false and damaging rumours were circulating about HBOS on March 19 and these would have had some impact on HBOS’s share price,” the FSA found. “It is difficult, however, to say how much impact, as the share price was also affected by the interaction of a number of other complex factors on the day.

“Despite the likelihood that the rumours contributed to the fall in the share price, the FSA has not uncovered evidence that they were spread as part of a concerted attempt by individuals to profit by manipulating the share price,” it concludes.

The FSA adds that it will continue to monitor for possible market abuse and that it is following up on other issues raised by its investigation: “In particular, Markets Division has launched a review of the systems and controls at firms for dealing with rumours. Specifically, we are examining what policies are in place and how firms ensure compliance with them; whether and how rumours are verified; whether traders are permitted to pass on or trade on rumours; and how firms ensure staff do not initiate or spread false rumours. This exercise is covering a range of investment banks, securities firms and hedge fund managers.”

The FSA will report these findings to the market in the early autumn.