BUSINESS OPINION: IT IS trite, but at the same time true, to say that all that the Financial Regulator's clampdown on false rumours in the markets has achieved so far is the promulgation of a whole new raft of false rumours.
Dublin was awash last week with reports that the regulator's trawl through the records of Dublin's broking houses had turned up a smoking gun or two; or more specifically a tape recording of somebody spreading false rumours about Irish bank stocks in an attempt to manipulate the market.
While the prospect of somebody being brought to book for such an offence is very welcome, it seems on balance unlikely.
This is not because nobody was spreading rumours, but because of the difficulties in proving people were spreading false rumours as part of an illegal trading strategy.
While the latter may constitute market abuse, the former - spreading rumours - is part and parcel of broking. One suspects the average client would be rather disappointed if his broker did not keep him up to speed on the gossip in the market.
That said, the Financial Regulator is reported - sorry rumoured - to have sought information in a targeted fashion and within a fairly tight deadline suggesting that it is - to borrow a phrase from RTÉ's Crimeline- following a definite line of inquiry.
The belief is that the regulator is interested in a number of transactions involving a number of hedge funds.
We wish it every success in its endeavours, but given the incredible difficulties involved in bringing a criminal insider-trader action in Ireland, it's hard to see a high-profile market abuse case leading to anything other than a titanic struggle in the courts.
But even if the investigation runs into the sand, the regulator can still count it as one of its successes.
We will probably never know just how bad things got at Anglo Irish Bank as it saw its share price plummet in the days after St Patrick's Day.
But we have a very good idea of what might have happened from the collapse of Bear Stearns, the previous weekend.
Last week the chief executive of the US bank told a Congressional hearing that its fire sale to JPMorgan came about as a result of unfounded rumours which induced a panic that in turn led to a run on the bank. "The impetus [for the run)] was a lack of confidence, not the lack of capital or of liquidity," according to Alan Schwartz.
By stepping in as it did on Holy Thursday, the regulator stopped a potential run on Anglo Irish Bank and also fired a shot across the bows of anybody who may have been engaged in spreading rumours in a fashion that constituted market abuse.
The effect was immediate and, in its way, a testament to the credibility of the regulator.
The scale of the bounce in Anglo Irish shares was also an indication of the extent to which the sort of panic that Schwartz referred to had taken hold.
There has been a great deal of discussion since then about the appropriateness of its intervention. The main argument being that short selling, bear squeezes and the like are part and parcel of the way the market works and regulators should not interfere. And as some have pointed out, nobody wants the regulators to get involved when false rumours are sending the shares in a bank through the roof.
Against that, the argument can be made that when panic has set in and the markets are no longer rational, then there is a case for intervention, particularly as the regulator's actions seem to indicate, they had prima facie indications of market abuse.
If one was looking for a reason to quibble it would be that the regulator appears to have only chosen to move after the Financial Services authority in the UK had taken similar steps in respect of the pressure coming on shares in HBOS.
If this was the case, then it takes some of the gloss off what was otherwise a good day the regulator.
