Davy found to have breached ISE rules on bond sales
J&E DAVY, the leading Dublin stockbroker, has been found to have breached the rules of the Irish Stock Exchange (ISE) over the sale of perpetual bonds to credit unions.
The exchange took the unprecedented step of issuing a statement on its website stating that it has found against Davy.
Following an investigation by the ISE, Davy was found to have breached rules on disclosing certain information to credit unions about the bonds.
Most credit unions that bought perpetual constant maturity swap (CMS) bonds accepted a recent €35m compensation offer from Davy after credit unions made huge losses on the bonds.
There were accusations that credit unions that bought the bonds had not understood what they were signing up for.
Evidence
Now the stock exchange has found Davy breached rules to ensure it provided written evidence to demonstrate that it had taken due care to ensure the credit unions understood all the characteristics of the bonds.
In a statement on its website yesterday, the ISE also found that Davy did not take all reasonable steps to ensure the bonds were in full compliance with the Trustees (Authorised Investment) Order 1998.
The wording of the statement suggests the stockbroker was not fined, but the statement does acknowledge that there were important mitigating factors behind the sale of the bonds.
The statement says the changed investment environment meant credit unions were seeking higher yield investments, and there was extensive interaction between Davy and its credit union clients.
"The Exchange is satisfied that Davy has taken appropriate remedial action to ensure that internal controls and conduct of business procedures have been rectified to mitigate against any recurrence of the breaches discovered," the statement says.
Some 149 credit unions around the country spent between ?180m and ?190m buying the bonds, which collapsed in value. The majority of credit unions have been forced to write down the value of the bonds.
The stock exchange statement added: "The negotiated settlement between Davy and its clients was welcomed by the exchange as it dealt with the core issue of loss of value of the bonds."
The Davy compensation scheme, which was endorsed by the Irish League of Credit Unions, has effectively underwritten most of the losses incurred on the bonds.
The Irish Stock Exchange no longer has responsibility for the regulation of its member firms, as this is now handled by the Financial Regulator.
\[b.clinton\]A spokesman for Davy said it noted the statment and its acknowledgement of the remedial action taken by Davy and the comprehensive settlement entered into with the credit unions.
- Charlie Weston Personal Finance Editor
