Rumour mill probe by French regulators

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French stock market regulators are investigating unusual share price movements in France Telecom and other CAC-40 blue chips, amid concerns that unknown market players could be profiteering on a wave of rumour and speculation.

The move comes as regulators in other countries voice concerns over the potential for market abuse in buoyant takeover markets. A study by the Financial Services Authority, the UK watchdog, estimated that questionable share price movements ahead of bids were as prevalent as in 2000.

France Telecom asked the AMF, France’s stock market regulator, to investigate a sudden 3 per cent drop in its share price last Tuesday after false rumours circulated that it would abandon performance objectives set only three weeks earlier.

The shares recovered to end the day barely changed after the group reconfirmed its dividend and margin targets at a long-planned conference of investors in London. A company spokesman, who refused to confirm the AMF request, said France Telecom “reconfirmed the objectives because of the false rumours”.

France Telecom’s concerns are echoed at other companies that have seen their shares buffeted by unexplained rumours. The AMF is understood to have launched preliminary investigations on dealing in Carrefour, Vinci, Eiffage, Valeo and Atos Origin shares.

Construction group Eiffage, saw its shares rise more than 40 per cent in just five days the week before last, amid rumours of a bid from Sacyr of Spain. Valeo shares jumped sharply after an anonymous fax was sent to French newspapers giving details – many false – of an approach by Apollo Investments, the US fund.

“The markets are very nervous, but I cannot exclude the possibility that people may have tried to diffuse information in an effort to exploit it,” Gérard Rameix, general secretary of the AMF, told the FT. “For the last two to three months we have been investigating more cases than normal.”

The volatility of global markets has fuelled an unusual number of rumours, as has the high level of global merger activity. In the first three months of this year, global M&A exceeded $1,000bn - making it the busiest first quarter on record. Market participants say it is no surprise rumours are proliferating, but several suggest they have seen a higher-than-expected level of unusual share movements.

“The rumours have been a bit surprising...we have seen shares shoot up without reason. This has strongly accelerated since the beginning of the year,” said one fund manager. ”People are asking a lot of questions but no one has the answers.”

The situation has led to frustration with the AMF and other European regulators, widely seen as lacking the power and determination of their US counterpart, the SEC. “If this was in the US, the SEC would come down on such situations like a ton of bricks,” said one banker. “Everyone is afraid of the SEC, but no one is afraid of the AMF. Continental European regulators are still not up to scratch.”

However, the AMF reiterated the difficulty common to all regulators in tracing unsourced rumours in a global market. “We have an active surveillance team and are very determined, but we cannot do things without proof,” said Mr Rameix. “It is very hard to trace rumours, except when they are related to a financial transaction.”

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