Police to Investigate Spoofing at Biggest Danish Mortgage Bank

(Bloomberg) -- Denmark’s financial watchdog has reported the country’s biggest mortgage bank to police for potential market abuses after finding evidence of spoofing.

The Financial Supervisory Authority in Copenhagen says it found nine instances in which an employee of Nykredit Bank, a unit of Nykredit Realkredit A/S, last year placed orders that the person had no intention of completing. Instead, the orders prompted a market-making algorithm to raise prices after which the orders were withdrawn and then resubmitted at a higher price, according to an FSA statement.

Nykredit acknowledged that the trades occurred but said the employee didn’t intend to manipulate the market. In a statement, the Copenhagen-based lender said that for illegal activity to have taken place, the employee would need to have known the bank was making a market in the two stocks involved. But it said that information wasn’t public.

Nykredit also challenged the idea that an employee would deliberately break the law in order to generate a profit of just 4,425 kroner ($657) for the bank. But the FSA said the orders appeared to have been “placed for the exclusive purpose of generating a reaction in the algorithm.”

Though the financial gains were small, the activity threatens the market’s integrity and creates a misleading picture of investor demand, which in turn can distort pricing, the agency said.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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