NEWS

The two men were handed  suspended prison sentences for market manipulation in 2010 after they worked  out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks.

Their appeal against that ruling was upheld by the Supreme Court on  Wednesday, which cleared them of market manipulation. The verdict will please  the trading community in Norway, which had come to view the duo as Robin Hood  figures, beating the big financial houses at their own game.

Two expert witnesses testified that the activities of Svend Egil Larsen and  Peder Veiby were common market practice. The defendants also argued that they  were making the market more efficient by exploiting a flawed system.

Mr Larsen told the Financial Times that he was still getting the better of  algorithmic trading systems today. “Just the other month UBS  forgot to set a bottom limit on one of their algos and I got some stocks for  cheap,” he said. “They even called me afterwards and asked me to reverse the  trade!” He declined to do so.

The case involved Timber Hill, a unit of US-based Interactive Brokers.  Prosecutors had argued that Mr Larsen and Mr Veiby “gave false and misleading  signals about supply, demand and prices” by manipulating several Norwegian  stocks through Timber Hill’s online trading platform.

But Mr Larsen said that the system was so flawed that “any rational investor  could have done what we did in the same open and transparent way”. The court  said that the transparency of their trades was one reason for their  acquittal.

Before the ruling both Mr Larsen and Mr Veiby had already been found innocent  in the court of public opinion. “The case against them was one of the most  unpopular I have ever seen in Norway,” said Sverre Nilsen, a reporter at local  financial paper E24, who was following the trial.

Mr Nilsen said that this partly reflects the unpopularity of algorithmic  trading systems that some feel gives big financial houses an unfair advantage,  but also the charisma of Mr Larsen, in particular, who was able to come across  as a lovable rogue taking on the powers that be.

Mr Veiby and Mr Larsen placed thousands of trades from late 2007 to early  2008. Mr Larsen said that problems arose when he was “bored in Florida” waiting  for his wife and children to wake up and placed a number of larger trades which  ended up attracting attention.

The eventual court case in 2010 came soon after the so-called “flash crash” in May of that year, when a single algorithm triggered a plunge in US  stocks prompting growing scrutiny of automated trading systems.

Mr Larsen’s lawyer, Halldor Tjoflaat, said he was pleased with the verdict  but disappointed that the court did not use it as an opportunity to clarify the  guidelines for the Securities Trading Act on market manipulation.