It's that time of the year when Shares magazine runs its annual City beauty poll. In the spread betting category Deal4free is taking the defence of its title so seriously that it's sent 2,000 of the questionnaires to its customers. Is it so desperate to retain its crown? "We don't believe we've done anything wrong," insists a spokesman. "We genuinely believe that we are giving our customers the opportunity to say if we're the best spread betting company or not. We have given no incentives to reply."
That's not true at rival City Index, where I hear that during last week's seminar for novices it handed delegates polling cards and offered a £500 credit to anyone opening a new account and having their questionnaire pulled out of a draw. "It's a normal marketing strategy where we took the opportunity to ask 150 spread betters if they wanted to take five minutes to take a look at a form," insists marketing boss Stuart Rice. Of 26 replies, 22 voted for City and four for rivals IG Index. "And I returned the other four," Rice adds.
WITH inspired timing, spread betting firm Tradindex is launching a temperature trading game. The website has a spread for the following day's temperature at Heathrow Airport, and you can buy or sell it (free). "If you think you can beat the weather forecasters, why not give it a go?" says head of trading Andrew Edwards, although he acknowledges that there's nothing to stop the chaps at the Met Office joining in. "We wouldn't stop Michael Fish," he said. "It's just a bit of fun. Mind you, they do know a lot more about this than we do."
OODS giant Nestle has shaken the market with its disappointing first-half profits. Blaming poor weather for softer ice cream sales, shares traded lower by more than 4% as the news caught traders by surprise. And spread-betters were quick to react.
It was enough to bring an end to the last few days of Footise recovery. Traders marked down the entire sector, with Cadbury's Schweppes coming off worst. The world's biggest confectioner fell 5p in early trading further adding to the company's recent disappointing share price performance.
Investor exuberance has been thin on the ground since the April high of 475p. Mixed earnings figures and adverse currency exposure have halted any further rise, knocking the price to its current 435p. Broker Credit Suisse First Boston recently reiterated its 'underperform*' rating.
However, investor support remains strong for their favourite fizzy drinks maker and many private traders are taking this opportunity to add to their portfolio. This week spread-betting broker easy2spreadbet is seeing nearly three times as many 'up' bets as 'down' bets. Maybe Cadbury's has a little fizz left in the bottle!
Footsie halted in its tracksTHE recent rally has been halted for now, and a significant stock-market climb seems capped for now by the threat of higher oil prices. Equally important to many spread-betters is the fact that the charts are still bearish.
Traders are keeping positions very short term, with many reporting light volumes creating tricky trading conditions. The usual summer lull has a tendency to lead to price 'gaps' as the index jumps to trade a new price without any warning.
Spread-betters seem fairly equally balanced in their outlook, with an equal number of 'buy' and 'sell' trades.
All change for Vodafone?LAST week saw Vodafone fall after its Japanese unit posted a drop in subscribers. Prompting speculation that the mobile operator's troubles may be deepening further, this added to an already rocky relationship with the city.
But, as is often the case, just when the skies are at their blackest, a ray of sun shines through. The last few days have seen frantic spread-betting volumes in the Footsie telecom giant, precipitated by a share price surge. Currently trading at 123p, traders are targeting 128p as the next technical level.
Spreadbetting traders are positioning themselves for a rebound in the main British and American stock indices, on the view that they have now drifted down to the bottom of trading ranges.
Bookmakers said punters were also holding onto big long positions in the banks, in the hope of further bid action for Abbey National and Barclays.
IG Index said its clients were long of the FTSE and Dow, apparently looking for rebounds to 4350 and 10,000 respectively.
Finspreads said clients were positioned in the hope that support would hold at 4283 on the FTSE and 9800 on the Dow. Opinion was more mixed on the Nasdaq.
On individual stocks, City Index said that clients were long of Shell, on talk of a merger with Total, and also long of Barclays, Abbey National and Lloyds TSB.
City said that punters were very long of Sainsbury, on rumours of bidding interest from venture capitalists.
Tradindex also said that punters were buying Shell, but it reported a 50:50 split overall between bullish and bearish trades in the market this morning.
UK investors may be barred from Google's flotation but evidence from the spread-betting markets suggests the internet search engine's share price will fall after it comes to market.
Cantor Index has been offering investors a chance to play on the flotation for the past month through a spread-betting "grey" market.
Yesterday the spread on Google's closing price next Friday was at $111 to $116. When Cantor first offered a grey market on the company, the spread opened at $128 to $133.
Spreads move upwards or downwards depending on the betting, indicating there are few buyers for Google in the UK. The shares are expected to list on Tuesday.
Cantor's Andrew Garrood yesterday confirmed that most of his clients had been shorting Google in expectation of a price fall, although he said volumes were thin. "Obviously, it would be good for us if the company did well, but we've been wrong before," he said.
Some firms plan to offer contracts for difference, a way of getting exposure to a share without actually owning it, when the company reaches the market.
The Lord Chancellor's Department and the Financial Services Authority must meet Paul "the Plumber" Davidson's legal costs incurred after his appeal against a £750,000 fine for market abuse was aborted amid questions over the impartiality of the appeal tribunal.
All four members of a tribunal hearing Mr Davidson's case withdrew from proceedings six weeks ago after it emerged one of them, Terence Mowschenson QC, had a chance midnight meeting with Christopher Fitzgerald, chairman of the FSA's regulatory decisions committee.
They admitted having discussed elements of Mr Davidson's case and Mr Fitzgerald has resigned.
Yesterday, Nuala Bryce, chairman of a newly appointed tribunal, wrote to the FSA and Mr Davidson's lawyers ordering that the costs of the aborted appeal be shared between the regulator and the Lord Chancellor's Department, which continues to employ Mr Mowschenson.
Asked how much he was likely to claim in costs, Mr Davidson said: "I don't know - a lot." But having mostly represented himself for the first few days before the hearing was aborted, the size of any claim is likely to be limited. Mr Davidson continues to press for his appeal to be transferred to a criminal court, where his lawyers can seek full disclosure from the FSA regarding the inquiry into his affairs.
The fine had been imposed for Mr Davidson's role in an alleged spread betting scandal that helped the flotation of drug firm Cyprotex.
The FSA declined to comment, noting Ms Bryce's ruling had not yet been made public.
PAUL MYNERS and Philip Green did not agree on much about Marks & Spencer this week. They were united, however, in their frustration over contracts for difference (CFDs). Both sides' efforts to fight a responsible, rules-based battle for the future of one of Britain's top companies were undermined by this insidious and ever-so-smart financial device.
Contracts for difference in individual shares have become big business because they enable speculators to trade without paying the 0.5 per cent stamp duty levied on genuine shares. Hedge funds, which account for two fifths of stock market trade, rarely buy genuine shares. The average time held is usually measured in days rather than years. Comparing trends in Stock Exchange turnover with the revenue from stamp duty, CFDs appear to be costing the Exchequer £2 billion a year.
By Monday evening, it was hard to be sure how much of Marks & Spencer's share capital was covered by CFDs but it may well have been 20 per cent. In the nature of CFDs, you do not know. To avoid the Inland Revenue claiming a change of ownership, which would attract duty, the bank or broker writing the CFD keeps or borrows the underlying share, along with its voting right. The overwhelming economic interest, however, rests with the speculator owning the CFD, which has the right to any change in value.
In most cases, neither party needs to declare an interest. The CFD owner is not a shareholder and market-makers are exempt from normal disclosure rules as well as having special tax privileges. The CFD voter cannot legitimately pledge its support to one side or the other. The nominal owner of the shares, while having the legal right to vote, has no legitimate interest in exercising its vote. The speculator is merely after a fast quid. The nominal owner has no interest at all in the long-term future of either company involved in a takeover bid.
Hectares of forest are felled, acres of print goes unread, thousands of expensive man-years are exhausted and hundreds of consultants live high on the hog in order to satisfy the desire of society and successive governments to see that the British corporate sector is well governed. If capital markets are to do their main job, which is to allocate capital where it will earn the best returns, it is essential that companies take corporate governance seriously and investors take their responsibilities to heart.
Many big institutional investors, egged on by Mr Myners in his work for the Treasury and the Department of Trade and Industry, try to be active, creative shareholders. They aim to improve the financial and social performance of companies they invest in, rather than act as silent outsiders who simply buy and sell companies down the river.
Beside this reality is now another that makes nonsense of the City's corporate governance codes and its takeover code. Whether Gordon Brown cares about that or just about his tax revenue, it is time the Treasury pushed CFDs and their like to the top of its agenda.
'Branson does not fit easily into the strictures imposed by a public company straitjacket'JUST how urgent is Sir Richard Branson's desire to extract some more cash from his mobile phone business? The prevailing view among analysts seems to be that he is putting far too high a price upon Virgin Mobile. But if he accepts the verdict and proceeds with a flotation at a price well below his current indicative levels, there will inevitably be some who conclude that the colourful entrepreneur has need of the money.
Sir Richard had been hoping to collect as much as £500 million on the flotation. With his extensive array of interests, such a sum can be swallowed very quickly. Yet, even though Virgin Mobile's advisors, JP Morgan and Morgan Stanley, had set a wide spread for the indicative price, critics are saying that, at 235p to 285p, it is unrealistically high.
The young company has been tremendously successful in winning customers. The Virgin brand undoubtedly does have pulling power with younger customers and they are the higher-spending ones on mobile phones. But there are question marks over whether an increasingly competitive marketplace will put pressure on the company's margins.
Virgin Mobile does not have a pressing need for new capital, which would force it into pressing on with the float, even if the market was unwelcoming. Instead, Sir Richard's Virgin Group is aiming to sell around 40 per cent of its share in the business. He and his advisers must be wondering whether it might not be more sensible to wait until the appetite for IPOs becomes a little healthier, unless the cash is required now.
The unenthusiastic response from analysts, one of whom is talking about fair value being just 160p, will have done nothing to enhance Sir Richard's rather jaundiced view of the City. Having floated his airline group once, he rapidly came to the view that he was happier without outside shareholders and he bought the business back within a couple of years. As an entrepreneur in the same mould as Philip Green, he does not fit easily into the strictures imposed by a public company straitjacket.
Acknowledging that, he will not be having any boardroom role in Virgin Mobile, merely the elevated status, and £100,000 salary, that goes with being president.
Will he succumb to the indignity of being a discount president? Last week M&C Saatchi decided to press on with its flotation, despite having to scale back the price. But the cash involved was on a fraction of that which is at stake in the Virgin share sale. The advertising agency was more interested in having the paper currency that flotation brings. Branson is after the cash, so he might yet decide to pull the float for now.
'The fund's trajectory is not entirely upwards and sometimes it goes through sticky patches'ANOTHER mobile phone company, mmO2, is one of the top ten holdings in Anthony Bolton's special situations fund. Such is Bolton's record that his choice of stocks is worth studying.
The current top ten are BP, Cairn Energy, BG, Hilton, Standard Chartered, Prudential, Allied Irish Bank, mmO2, Hilton and ITV. The last is responsible for him being dubbed The Quiet Assassin, after his intervention led to the deposing of Michael Green as the chairman in waiting of the now merged ITV.
Bolton is a long-term investor. Whereas some hedge funds now may have an average holding of only a week, his is around 18 months. Sometimes he has to wait for the markets to come round to his judgment on a stock. ITV is certainly not performing well for him at the moment. This time, however, he is likely to rely on the new chairman, Sir Peter Burt, to do whatever may be required to try and ensure that the company delivers on the potential strengths that the merger was designed to provide. Chief executive Charles Allen may not be feeling too secure at the moment, with Greg Dyke about to be available for work.
The notoriety that the Carlton affair brought Bolton was out of character. At the end of this year, Bolton will have notched up 25 years of running his fund and the performance has been spectacular. The annual average growth of over 20 per cent compares with the FTSE all-share's 13 per cent and adds up to a cumulative increase of 8,790 per cent, as against the all-share's 2,036 per cent.
The trajectory, however, is not entirely upwards and sometimes the fund goes through sticky patches while others steam ahead. The record, however, means that for investors rather than traders, his choices are worth thinking about. In particular, perhaps, it is notable that he is currently keen on energy stocks. With demand for energy growing, powered particularly by the growth in the Chinese economy, and with the instability in the Middle East helping keep prices up, he may be right to suspect that BP in particular is undervalued.
THE shares at the centre of a controversial wager that sparked a major investigation now belong to the owner of the spread-betting firm that first accepted it.
Intercapital Private Group, owner of betting firm City Index, now holds 16.52% of biotech company Cyprotex, which it bought at 1p a share.
The shares closed on Friday at 9p, resulting in a paper profit of £1.68m for Michael Spencer, chief executive of money broker Icap, and majority shareholder of IPG. He is named as beneficial owner of the 21m shares.
Ironically, IPG bought the shares from investment bank Dresdner Kleinwort Wasserstein, which was forced to buy them to offset a spread bet accepted by City Index.
The Financial Services Authority launched a major investigation into the flotation of Cyprotex two years ago after it emerged that Paul Davidson, the entrepreneur known as The Plumber, had placed a £5m spread bet on its shares with City Index.
The size of the bet forced City Index to buy shares in Cyprotex through DKW and the investment bank subsequently ended up as the biggest shareholder.
Davidson, who is appealing against a £750,000 fine by the FSA for his role in the flotation, is being sued for £900,000 by City Index. The company claims it was unable to launch legal action against him until it had closed out the position and crystallised its losses.
ACCORDING to the finest theoretical minds in finance, you cannot time the market. That is to say, you cannot pick the time to get in or out of a stock so that you make more money than if you had just bought or sold at random.
The theory seems to fly in the face of the fact that half the City and thousands of private investors spend most of their effort trying to time the market.
Trading is where the bulk of the market's liquidity comes from and it's the volume of liquidity that makes or breaks any bourse. If you want to sell £1 million of a stock in a second, you need liquidity. If you are a pension fund or an institution, liquidity is a key factor in whether you can participate in a market or not. Trading is the backbone of liquidity, so it's fortunate that traders don't believe the theorists as the higher the cost of a trade, the less likely they will play.
In the UK, stamp duty inflicts an immediate 0.5 per cent loss to the trader and this would be an unassailable hurdle for a day trader who wants to be in and out of a trade in hours or even minutes. While it might not seem much, 0.5 per cent equates to a month of returns in a reasonably bullish market.
Day traders get over this by using contracts for difference (CFDs) and spread bets, which exploit loopholes in the tax laws, thus avoiding stamp duty. CFDs and spread bets are derivatives, meaning the trader does not actually buy, sell or hold the actual shares. Instead, he enters a contract with the CFD provider or spread better, which is equivalent to holding the shares.
There are many benefits to the trader of using these derivatives rather than actually holding the shares. In general these are: the ability to go short or long; no stamp duty and availability of leverage. The advantages for spread bets are no tax on profits; the ability to trade diverse instruments like commodities, foreign exchange and indices like the FTSE 100, while for CFDs the advantages are direct access to tock exchange automated markets.
A spread betting firm will offer to take your bets on the movement of a stock or indices on the basis of pounds a point. This means you can buy Vodafone £1 a point long, so that if Vodafone went up 10p you would make £10, if it went down 10p you would lose £10.
Spread bets are a cheap way of making small bets and many providers such as Deal4free, Easy2spreadbet and IGindex [Mr Chambers is obviously supporting his advertisers here!] have sophisticated on-line software to let you trade quickly and efficiently. CFD providers like GNItouch and E*TRADE offer customers trading software that can place their orders directly on to the stock market's central system. Once executed, this order is then wrapped up in a CFD.
This direct market access puts you on a level playing field with the professionals. This kind of trading is ideal for those wanting to place larger positions, say of £5,000 or more, directly into the market.
Playing with the pros can be an expensive education, but for those who aspire to winning fortunes, this is the cutting edge for trading.
Trading is not for those of a nervous disposition and a novice should do a great deal of homework before trying it. However, CFDs and spread bets are powerful tools for the private investor if used with care.
The London-based financial spread betting company, has launched miniCFDs (www.miniCFDs.com) This new online product makes Contracts for Differences (CFDs) accessible to many more investors, with a low minimum deposit of GBP100 or EUR100, no minimum commission, and trade size as low as one CFD. There is no UK stamp duty (normally 0.5% on share trading) to pay.
MiniCFD's are offered on most UK, US and European shares capitalized at over GBP50 million. Traders can hold their position for as long as they like, as there is no fixed settlement date. During the five weeks of miniCFDs' Trading Academy - a course aimed at explaining the uses of CFDS - traders can buy and sell equities for as little as one share at a time.
The three remaining members of the tribunal panel hearing an appeal brought by private investor Paul "The Plumber" Davidson have stepped down after conceding that questions raised about impartiality had left their positions untenable.
Before any legal argument could be aired, tribunal chairman Stephen Oliver QC read a statement, saying: "We think that in the circumstances of the case, the fair-minded and informed observer would not be able to exclude the real possibility of unconscious bias.
"For that reason alone we recuse ourselves from the hearing of this reference."
The decision follows revelations about a chance midnight meeting between tribunal member Terence Mowschenson QC and senior Financial Services Authority regulator Christopher FitzGerald.
Mr FitzGerald's department two years ago handed down a £750,000 fine to Mr Davidson for his role in an alleged spread betting scandal that helped the flotation of drug firm Cyprotex two years ago. The midnight meeting raised concern because Mr Mowschenson was sitting on the panel hearing Mr Davidson's appeal.
Earlier this month, Mr FitzGerald resigned as chairman of the FSA's regulatory decisions committee after details of his midnight meeting were reported in the Guardian. Mr Mowschenson, a deputy high court judge, followed suit last week, withdrawing from Mr Davidson's appeal.
At an earlier tribunal hearing, held in private, Mr Mowschenson admitted he had been walking his dogs at 12.30am and stopped for a doorstep conversation with Mr FitzGerald three days after Mr Davidson's appeal hearing had started. According to Mr FitzGerald, Mr Mowschenson relayed some of the preliminary thoughts of the two lay members of the tribunal. Mr Mowschenson was also said to have revealed some of his own thoughts about Mr Davidson's case. Both men have denied there was an attempt to influence proceedings.
Mr Oliver yesterday said a new tribunal would be appointed to hear the appeal. He added in passing that his two panel colleagues - lay members Ian Abrams and Catherine Farquharson - had been surprised by accounts given of their supposed initial thoughts on Mr Davidson's case. "Neither member even recognises himself or herself in the statements and reactions attributed to him or her by Mr FitzGerald," said Mr Oliver.
After reading his statement, Mr Oliver and the panel withdrew without ruling who was to foot the legal bill for the recused proceedings.
Outside court Mr Davidson's lawyers said they were disappointed the tribunal had not addressed their request that the FSA be ordered to disclose internal memos, emails and telephone call transcripts.
They believe all proceedings involving Mr Davidson have been "contaminated" after questions were raised about impartiality and independence at the FSA and the tribunal. You only have to be an A-level law student to realise this meeting should never have taken place," said James Saunders of Saunders & Co.
"It is unavoidable that there will be a very detailed examination of these proceedings and [Mr Davidson's case] will end up in a proper court.".
Mr Davidson's case is one of the first to go before the financial services and markets tribunal. Questions raised about its impartiality have come as a serious blow to the government's new market abuse regulatory regime. The government had emphasised the independence of the tribunal when it granted substantial enforcement powers to the FSA in 2000.
Mr Davidson last night attacked the tribunal's decision not to hear applications by his barrister. "They can't just walk out like that," he said. "This is not going to be the end of this."
The Financial Services Authority will today call on the the tribunal panel hearing an appeal by private investor Paul "The Plumber" Davidson over a record £750,000 fine for market abuse to step down after concerns about bias.
One member of the four-strong panel, Terence Mowschenson QC, resigned last week after the Guardian reported that he had been involved in a chance midnight meeting with Christopher FitzGerald of the FSA's regulatory decisions committee while out walking his dogs.
Mr FitzGerald had been involved in the decision to fine Mr Davidson. He has also resigned from the FSA and his conduct has been condemned by the regulator as "inappropriate".
At a tribunal sitting, held in private earlier this month, it became clear that the two men admitted discussing elements of Mr Davidson's ongoing appeal on Mr FitzGerald's doorstep. According to Mr FitzGerald, his old friend Mr Mowschenson had told him that a lay member of the tribunal "was concerned" that the evidence could not support the FSA's finding of market abuse against Mr Davidson.
"Mr Mowschenson commented that he was amazed by this and that he, Mr Mowschenson, was clear that it [the evidence] could. He had talked to the other member about that. The doubting member's view was unsettling another member."
After the private sitting, Mr Davidson's lawyers indicated that they would need 10 days to prepare an application for recusal, which would see the tribunal, or Mr Mowschenson, remove themselves from considering the appeal.
They are, however, understood to have changed tack in recent days. Mr Davidson believes that the midnight meeting potentially raises wider questions about the impartiality of the FSA - inparticular Mr FitzGerald's former department and its treatment of his case. He wants the tribunal to order disclosure of FSA internal memos, emails and telephone transcripts.
The FSA, meanwhile, will this morning lodge its own application for recusal with the tribunal. It will argue that Mr Davidson's appeal would be best dealt with by a fresh tribunal panel.
Mr Davidson is thought likely to fight such a move after learning from Mr FitzGerald's account of the midnight meeting that the two lay members of the tribunal appear to have some sympathy with his case.
The fine against Mr Davidson was for his role in an alleged spread betting scandal that helped the flotation of drug firm Cyprotex two years ago.
Paul "The Plumber" Davidson, the businessman at the centre of one of the country's biggest market abuse cases, will tomorrow ask the three remaining members of the Financial Services and Markets Tribunal to step down from hearing his case.
Lawyers acting for Mr Davidson will claim that the tribunal is compromised and a new panel should take over the case. The move comes after extra- ordinary events that saw the resignation of Christopher FitzGerald, the chairman of the Financial Services Authority's regulatory decisions committee, nine days ago, followed by that of the tribunal member Terence Mowschenson QC on Thursday.
Mr Davidson's camp says the existing tribunal should stand down in the wake of the revelation that Mr Mowschenson had a private conversation with Mr FitzGerald early one morning, during which the attitudes of other tribunal members were discussed. One of the most powerful regulators in the City, Mr FitzGerald oversaw the FSA inquiry into Mr Davidson. The conversation has been likened to a private meeting between a judge and prosecutor in the middle of a case without the knowledge of the defence.
The hearing is reconvening tomorrow after allowing Mr Davidson a week to instruct lawyers.
Mr Davidson's appeal to the tribunal over his £750,000 fine for market abuse - the largest handed out to an individual by the FSA - has become the best show in town for City watchers.
The tribunal got off to a roaring start when Mr Davidson, a pugilistic Mancunian, fell out with Nigel "The Spaniard" Howe, a stockbroker, accusing his former friend of lying in giving an account of the events that triggered the fine.
Mr Davidson had until recently represented himself. Although he is a multi-millionaire, his £80m assets have been frozen by a court.
How the after-midnight meeting between Mr FitzGerald and Mr Mowschenson became known is not yet clear. According to one version, Mr FitzGerald mentioned it to his colleagues. They felt compelled to blow the whistle. Another version says the meeting was observed by a third person.
Both men, who are friends and live in the same area, said the meeting occurred by chance. Mr Mowschenson was passing Mr FitzGerald's house, walking his dogs, when the FSA official spotted him and a long conversation followed. The men don't deny that they discussed matters relating to Mr Davidson's appeal, including some of the provisional thoughts of panel members. Both have said there was no attempt to influence the outcome of the case.
Under pressure from the FSA, Mr FitzGerald resigned on Friday from the regulatory decisions committee. The FSA described his conduct as "inappropriate". After initial defiance, Mr Mowschenson resigned on Thursday.
Mr Davidson's was the first market abuse case to be heard by the tribunal, which was set up by the Government to provide an independent counterweight to the powerful regulator.
The case concerns Mr Davidson's placing of a spread bet two years ago on Cyprotex, a biotech company that was floating on AIM. Mr Davidson is the largest shareholder in the company.
City Index, which took the bet from Mr Davidson, covered its position by taking out a "contract of difference" on the stock with Dresdner Kleinwort Wasserstein. The investment bank, in turn, covered its position by buying shares in Cyprotex.
The FSA, which regulates spread betting, did not like the bet. It said that Mr Davidson placed the spread bet knowing that DKW would be forced to take a position in the stock, ensuring that all the shares in Cyprotex were successfully sold before the float. Mr Davidson said he was unaware of the transaction.
Mr FitzGerald's committee investigated the bet, decided it was improper and fined Mr Davidson £750,000. Two individuals, including Mr Howe, who helped Mr Davidson were also fined, although these fines were far less.
Paul Davidson, 50, is known as "The Plumber" in City circles because of his rough and ready background and the invention on which his fortune based.
Mr Davidson, who comes from Manchester, created a valve that allows plumbers to remove a central heating radiator without the whole system being drained.
In fact, he is not a plumber at all. He became an apprentice fitter and welder after leaving school at 15 and set up his own contract pipe-fitting firm, Oystertec. He realised that many companies owning intellectual property were undervalued, and increased his fortune through acquisitions.
He is married to Karen, 46, a beautician, and has two children, James, 21, and Lauren, 18. The family live in a £4m manor house in Prestbury, Cheshire.
Mr Davidson does not hide his wealth. He is said to own 19 cars, and his huge yacht can comfortably seat 32 for dinner, served by his personal chef.
He doesn't brook City rules easily and has had a number of spectacular court bust-ups. In court earlier this year, he said that not being able to do business had cost him "millions of pounds". Having given his main occupation as "property development", he claimed that he was behind on some mortgage payments.
The march of new-style financial services firms on to the territory once dominated by the traditional stockbroker continues apace. Financial spread betting and, more recently, contracts for difference (CFDs) have supplanted the buying and selling of shares for a lot of sophisticated or regular share traders. CFDs allow punters to bet on falls as well as rises by an individual share, and there is no stamp duty to pay.
Now IFX Group is hoping to attract even the occasional small shareholder over to CFDs with a new product launch. Its mini-CFDs require a much smaller deposit from new account holders than existing products, and IFX is promising to train people in their use. It is the second innovative product from IFX in a fortnight, the company having just started offering CFDs on a selection of hedge funds.
The government's scheme for dealing with a series of newly defined market abuse offences was in crisis last night after details emerged of a midnight meeting which appeared to raise doubts over the impartiality and independence of a tribunal set up to hear appeals against penalties handed down by the City regulator.
Sitting yesterday in private, the tribunal was told how Christopher FitzGerald, chairman of the FSA's regulatory decisions committee, in the early hours of Wednesday, met Terence Mowschenson QC, a member of a four-strong tribunal panel hearing an ongoing appeal against a £750,000 fine imposed by Mr FitzGerald's committee.
The fine against private investor Paul "The Plumber" Davidson was for his role in an alleged spread betting scandal that helped the flotation of drug firm Cyprotex two years ago.
The Guardian has seen a transcript of yesterday's private hearing during which FSA counsel Thomas Beazley QC revealed details of the midnight meeting. Mr Beazley told the tribunal he understood Mr FitzGerald had played a decision-making role in imposing the fine, although he had not signed the final decision.
In a remarkable speech which appeared to call into question the integrity of two of the UK's most senior financial regulatory officials, Mr Beazley said: "The issue is whether the circumstances are such as to lead a fair-minded and informed observer to conclude that there is a real possibility that ... a member of the tribunal was biased."
Mr Davidson, who was representing himself until yesterday, was granted an adjournment while a newly hired legal team began preparations for an application for recusal, which would see the tribunal, or Mr Mowschenson, remove themselves from consideration of the appeal. Mr Davidson's case is one of the first to be heard by the financial services and markets tribunal.
His new barrister told the panel: "The matter is so grave that it goes to the very heart of the structure that has been raised by parliament to protect investors and to properly regulate the financial markets by the establishment of the FSA."
The panel was shown an account of the meeting given by Mr FitzGerald in which he recalled how from a window he spotted Mr Mowschenson walking his dogs past his house. The two men were then said to have had a doorstep conversation. Mr FitzGerald said Mr Mowschenson said a tribunal colleague had raised doubts about the finding of market abuse against Mr Davidson. Mr FitzGerald said he made no comment about the substance of Mr Davidson's case.
Mr Mowschenson told the tribunal the conversation had touched on how the two lay members of the tribunal "have got different approaches ... Then I think I said: 'Interesting how penalties differ'." He said he had not known of Mr FitzGerald's involvement in the case. "There was no input from him and no attempt to influence me in any way ... He just wanted to know how we were getting on in terms of progress."
He said he had not mentioned the conversation to his fellow panel members despite sitting by them at Wednesday's appeal hearing . "I think things are being slightly blown out of proportion ... If I am asked the question: 'Am I in any way embarrassed? Do I think it has tainted my approach to the case?' The answer is 'absolutely not', because we are right at the beginning of this case."
The FSA declined to comment last night "because the hearing was in private". How the meeting came to the FSA's attention and the exact contents of the conversation are unclear at this stage.
Remember the case involving the 'Spaniard and the Plumber'? - Well, things continue to unfold...
Paul Davidson, the businessman fighting a £750,000 fine from the Financial Services Authority over a £6m spread bet, considered entering into other such deals, his former stockbroker and one-time friend told a City tribunal yesterday.
Nigel Howe, known in City circles as the Spaniard, made the assertion at the financial services and markets tribunal which is hearing Mr Davidson's appeal against the FSA's finding that he was guilty of market abuse during the flotation of drugs company Cyprotex two years ago.
In heated but at times comic exchanges, Mr Howe and Mr Davidson failed to agree over the events that led to the spread bet, which was executed by City Index. Unusually, Mr Howe was questioned personally by Mr Davidson, as Mr Davidson is representing himself. "You were the one who suggested it to me. Slightly embarrassing, as I'm the one with the experience in spread betting," Mr Howe said.
Mr Howe, whose £300,000 fine for his role in the affair has been cut to £50,000, asserts that Mr Davidson knew the bet would allow Cyprotex to be floated successfully as it required investment bank Dresdner Kleinwort Wasserstein to buy a large part of the shares in the flotation to allow the spread betting firm to hedge its exposure to the bet.
Mr Davidson, who is known as the Plumber because he invented a pipe that makes it easier to paint behind radiators, insists he had not expected the bet to be used in this way. He disputed Mr Howe's claim that no one at the stockbroking firm Gilbert Eliott, which handled the flotation and used to employ him, did not know about the reason for the spread bet.
"It's like water pouring on your head if you're a plumber," said Mr Davidson. "There's a leak. At best it's incompetence. At worse it's a blind eye."
The tribunal heard Mr Howe and Mr Davidson fail to agree about whether £50,000 received by the stockbroker from his client had been a gift or a loan. They also disagreed over the details of meetings.
"Are you calling me a liar or asking whether I am one?" Mr Howe said after one question from Mr Davidson.
Mr Davidson said the FSA had conducted a "witchhunt". "I've been found guilty in my absence. I feel the whole process was kangarooed," Mr Davidson said. The FSA contends that he was invited to give evidence but it did not compel him to do so.
The tribunal continues.
MICHAEL Spencer, the City's richest self-made man, was also the second best-paid of quoted company bosses last year.
He collected £4.9m in pay, bonus and benefits from his booming moneybroking house ICAP.
Spencer, whose red braces and swashbuckling manner recall the Square Mile's 1980s swagger, trails hedge fund king Stanley Fink at Man Group but his pay package beats many other blue-chip bosses.
That is only the half of it. Spencer and Lorraine, his wife of 20 years, also collected £4.6m in dividends on their shares, which are valued at £169m.
Spencer founded the group as Intercapital in the 1980s and took over struggling rivals last decade.
As an inventor of spread betting, he has built up a small fortune in bookmaking. Rival bookies do not mind - Spencer has been known to drop £20,000 in a single day at the races.
Three other ICAP executives - David Gleber, Stephen McDermott and Jim Pettigrew - collected more than £1m each last year. Profits boomed as interest rate volatility boosted demand for the financial derivatives ICAP trades.
Executives elsewhere were less fortunate. Mike Parton, boss of telecoms equipment group Marconi, received a £588,000 pension top-up while his pay fell by a third to £860,000.
But he has options currently showing £19m profits, as his reward for seeing Marconi through the debt-forequity swap last year that almost wiped out investors.
Stock Exchange chief executive Clara Furse saw her performance bonus slashed by two-thirds as profits growth slumped, but she still handbagged £869,000.
The crisis at engineer Invensys has not left chief executive Rick Haythornthwaite short. He got a 25% pay rise to £1m last year, including £200,000 bonus. His share award is conditional on future performance and is currently worth £541,000.
Top fat cats in 2004A SURGE in support for England has left spread-betting companies facing record losses of more than a million pounds if the national team goes all the way in Euro 2004.
Spread betting — a derivatives-based form of gambling, which enables punters to "buy" or "sell" the result of a sporting event — has historically attracted the more canny among punters, making it much less prone to nationalistic euphoria.
But last week's thrashing of Iceland has opened the floodgates to punters backing the national team.
Brendan Madden, a trader at Cantor Sport, says: "We saw hardly anyone backing England until Saturday's win against Iceland.
"But since that free-scoring performance we have taken some good bets, including a £2,000 buyer on England to score more than six goals in the tournament."
Betting on David Beckham to score against France is a popular bet.
But importantly with spread betting, as well as limitless potential winnings, the punter's losses are also limitless if your selections fail to deliver.
"Only bet on a sport that you know about," is the advice that Nigel Seeley, of IG Sport, offers to prospective spread betters.
The sophisticated nature of spread betting makes it unsuitable for fans with just a passing interest in the European Championship, he cautions.
Mr Seeley says: "If you do fancy yourself as a bit of a football expert, it also pays to be selective in what you bet on. We offer hundreds of different markets and cannot get it right all the time. It is down to the punter to spot a winning opportunity."
Paul Wilmott, a derivatives specialist who is a firm believer that gambling is a form of investing, says that anyone gifted with a flair for statistics and probability should consider spread betting.
He says: "In comparison with the wheeling and dealing of multibillion-pound corporations, Euro 2004 is far more transparent for the average man in the street.
"He will be able to get all the information that he needs, matches will not be fixed and there is unlikely to be any accountancy fraud going on."
IFX Group, the financial trading and spread-betting company, has refined its approach and tightened controls after being caught out in February by a sudden surge in the dollar.
Edmond Warner, chief executive, said: "We have adapted a more risk-averse trading stance." This included less proprietary trading as well as application of a "finer-meshed filter" to customer positions.
IFX's ideal book was "one that has a thousand grains of sand in it - we don't want any big boulders", Mr Warner said.
IFX has also appointed a new head of foreign exchange since the February blow, which contributed to a £2.63m pre-tax loss in the year to March 31, after a £1.29m profit in 2002-03.
The downturn, however, also reflected costs of the re-organisation undertaken by Mr Warner, formerly chief executive of Old Mutual Financial Services UK, since he joined IFX a year ago.
He said IFX had been "overburdened with middle management - they were tripping over each other".
Settlements with former directors and senior management led to a £1.23m exceptional charge, and costs related to Mr Warner's recruitment were taken as a £220,000 exceptional item.
IFX has also upgraded the trading platform for customers in spread betting and contracts for differences (CFDs) and foreign exchange - all more competitive because of the transparency of online services.
Mr Warner said: "Margins will [continue to] be fine; Customer service is critical; functionality is critical."
Creating more "financially sophisticated" retail investors was also important. The Trading Academy approach used in spread betting by IFX's Finspreads division - including introductory minimum stakes of 1p a point - is being extended to CFDs.
IFX is looking for other online financial services businesses to diversify revenue and reduce volatility. Profit before goodwill amortisation and exceptional items was £771,000 (£2.93m), in line with lowered market expectations after the February warning. Turnover was £16.3m (£21.4m).
In spite of losses per share of 8.66p (2.22p earnings), IFX is maintaining its final dividend at 0.5p for a total 50 per cent higher at 0.75p.
A BLIND man accused of a £110,000 betting scam got his trial halted yesterday when he asked to see court papers.
Clifford Gardiner, 44, is alleged to have duped 12 men out of large sums of money to fund the internet spread-betting scheme.
A Dunoon man is said to have handed over nearly £50,000.
Gardiner is registered blind and walks with a white stick. He had to be helped into the dock at Perth Sheriff Court.
The court was told that he can read with the aid of a special scanner and he wanted to see documents relating to the case.
Sheriff Lindsay Foulis extended the time bar by two months to let the Crown provide photocopies of more than 120 court papers.
Gardiner denies fraudulently obtaining £111,369 between April 1998 and May 2002.
It is alleged he told people he would use their cash in a betting scheme based on the FT Share Index, and their stake would be returned plus profits.
Instead, it is claimed he used the money for his own purposes.
Alleged victims came from as far afield as London, Middlesbrough, Bath, East Sussex, Devon, Yorkshire and Glasgow.
The trial was scheduled to start this week but has now been postponed until August.
Bookmaker Cantor Index has quietly launched an online spread betting exchange in the gambling industry's latest move towards person-to-person betting.
The website, Spreadfair.com, currently only offers a small selection of markets to compete with industry leader Betfair.com. It differentiates itself by concentrating on spread betting, rather than the more popular fixed odds.
Betting exchanges differ from traditional bookmaking businesses by allowing punters to bet against each other. They typically offer more attractive prices than bookmakers and make their money by taking a percentage of the winner's profits. Spreadfair will charge a 5pc commission.
"This is the future of spread betting," said Cantor's managing director Lewis Findlay. "People are now familiar with betting exchanges and I think we can take a larger percentage of spread betting on to an exchange than for fixed odds betting," Mr Findlay added.
The exchanges still account for only a tiny percentage of the overall betting market, although they are believed to account for more than 10pc of the online market.
As Opec is running at full tilt for the first time and some traders say the $80 barrel is not far off, speculators are making a killing.
The soaring oil price may be bad news for consumers, from big companies to motorists, but it has made millionaires out of many who saw the rise coming.
Simon Ramsay, 43, a former City trader, has collected some $100,000 in the past few weeks from cashing in a few of the futures contracts he has amassed.
"Last year I didn't really know anything about oil futures," said Ramsay. "Then a former colleague told me about some research he had found which convinced me the oil price was only going to go up.
"Using IG Index (the spread-betting exchange), I started buying in September, slowly at first and then building up. I still have a stake worth £350,000 from an original risk capital of $50,000 (£27,000). The past few weeks have been great."
IT WAS a Thursday the new chief executive of IFX will never forget. On 19 February, a 4% upswing in the value of the dollar wiped £1.5m off the spread betting and trading company's position in just a few hours.
Edmond Warner, who had already been struggling to turn the flagging business around, realised he had to issue a profits warning and make some major changes to the company's appetite for risk.
Within weeks, new management had been brought in with the brief to cut down IFX's proprietary trading activities and focus it on being a high-volume broker.
Thanks mainly to that February day, underlying profits for the year to 31 March were £800,000 against £2.9m a year earlier.
Warner was already carrying out a restructuring of the business, including getting rid of most of the management team. That, and the cost of relaunches of its Finspreads and other products meant the group racked up losses of £2.6m in the year.
However, Warner was today confident that the signs were good for 2004, with a near-24% jump in the number of active users of the Finspreads service. He is upping the dividend to 0.75p from 0.5p a year earlier.
Meanwhile, IFX has launched a contract for difference product that directly reflects the value of onshore hedge funds. Designed so that smaller players can back hedge funds without going investing in offshore products, Warner hopes it will be a moneyspinner in future years.
ONE of the less widely noticed statistics to emerge recently from the Inland Revenue is that the tax raised from stamp duty on securities is running at something like half the level anticipated by the Treasury.
There is just one reason for this - professional City investors are cutting back on their dealing in shares and, wherever possible, using a derivative, which gives them the equivalent exposure but has three advantages. It does not attract the tax, it is usually easier to take a large position without creating significant market impact and it is discreet. Derivatives are booming as a result.
The investors who handle pension funds have for the most part too great an exposure to equities to be compatible with the risk they want to run in their funds. But rather than sell the shares and use the money to buy bonds, they prefer - when they are allowed to by their mandates - to adjust their position through the derivatives markets. Similarly, companies or individuals seeking to launch a takeover will take a position in the target stock through contracts for differences.
It has not emerged yet as public information but it would be no surprise if Philip Green, currently stalking Marks & Spencer, or some of his advisers have some contracts for differences in the shares of the stores group. It would add considerably to their leverage when it comes to negotiations, so the surprise will be if he turns out to have none. In the old days, bidders would first try to build up a strategic stake in the stock market - and the resultant price movement was what often gave the game away.
Even the private investor has found an alternative. Many of the individuals who once would speculate in shares as a matter of routine now bet on shares moving up and down through spread-betting firms.
This is doubly tax free - no stamp duty and no capital gains tax - although there is betting tax.
Many of these derivatives contracts require some offsetting purchases or sales on the Stock Exchange as part of the process, and indeed by some measure almost half the trading in equities is in some way derivative-related. It does seem discomforting, however, that a relatively small amount of equity trading - often in thin markets with no great depth or liquidity, is supporting ever more ambitiously structured derivatives put together out of sight in the over-the-counter markets.
It means the Stock Exchange only sees a great deal of the business at one remove - yet all these prices are struck with reference to its quotations, albeit they reflect only a proportion and often a minor proportion of the activity taking place.
It raises questions, too, for the future role of the Exchange - given that the big investment banks which put together these contracts for differences are mini exchanges in their own right. Currently it suits them to have the Stock Exchange - but it might not always be so.
AWG AgonyTHE figures today from AWG, once better known as Anglian Water, are testament to the fact that there is no business, however boring and stable, that cannot be screwed up by a lethal combination of pushy investment bankers, an over-ambitious chief executive and a compliant board.
When it was privatised along with all the other water businesses, Anglian Water had a boring stability and predictability. It had infrastructure spending to finance plus environmental responsibilities for its miles of coastline and a bit of waste disposal. Rocket science it most certainly was not. But egged on by analysts wanting a story to set the group apart from the others, the management under previous chief executive Chris Mellor went looking for higher returns in non-regulated businesses at home and overseas.
In what had to be his supreme folly, Mellor even paid more than £100m in advisers' fees to ring-fence the water business, the better to pursue his ambitions elsewhere - and his board nodded it through. The result was predictably disastrous. Mellor eventually paid for it with his job, Anglian's shareholders paid for it with massive write-offs and destruction of value and Anglian's customers would have paid for it in higher charges were it not for the watchful eye of the regulator.
With the latest round of writedowns accompanying today's reduced profits, it is barely an exaggeration to say that everything Mellor bought has been sold at a loss or closed, as the group is pared back to the regulated water business it should never have left.
The fact that new management is now clearing up the mess should not disguise the fact that this is a shameful story from which only the City advisers have emerged with a profit.
FINANCIAL gamblers are raising their bets on unwelcome news about interest rates for homeowners on both sides of the Atlantic next month.
With surging oil prices threatening to rekindle inflation, financial bookmakers are pricing in a near-certain rate increase in the US and are almost equally divided on the prospects of the second quarter-point rise in two months in Britain.
Prices quoted by spread betting* firms and betting exchanges were suggesting that there is about an 85% chance of a rise in American interest rates and a 40%-50% likelihood of an increase in British rates in June.
David Buik at spread bookmaker Cantor Index said his firm is quoting 435-439 (4.35% to 4.39%) for interest rates in Britain at the end of the next meeting of the Bank of England's monetary policy committee*, under Governor Mervyn King, on 10 June.
Since British rates are at 4.25%, this suggests there is almost a 50% chance of an increase to 4.5%.
On the London-based Betfair exchange, £15,000 of wagers on the June MPC decision had been matched by yesterday, with a quarter-point rise quoted at the equivalent of 5/4 against and a no-change decision at 2/3 on. However, a rise in US rates from 1%, where they have been for almost a year, looks a near-certainty.
Cantor was quoting a spread of 120-123 (1.2% to 1.23%) for the US Fed funds rate after the next Federal Open Market Committee meeting on 29 and 30 June, implying a near-90% chance of a an American rate rise.
Dublin-based Tradesports was quoting an 80%-85% chance of a quarter-point rise in US rates while Betfair was showing a quarter-point rise as 1/3 on.
Meanwhile, a survey from HSBC revealed that this month's quarter-point increase in UK rates has had no impact on consumers' appetite for debt. The bank's household sector borrowing confidence index registered 178 in May against 170 in April. Strengthening demand for mortgages contrasted with a slight weakening in demand for unsecured debt.
World oil prices were rising again today ahead of key data on US crude stocks, which traders will scrutinise for clues as to whether there will be enough to meet peak holiday- season demand for petrol. US light crude futures* were up nine cents at $41.17 a barrel. On Monday, they closed at a record $41.72. In London today, Brent crude rose three cents to $37.47. .
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