Dresdner Probed By FSA

The controversy surrounds Paul Davidson, Cyprotex's largest single shareholder, who made a bet with spread-betting firm City Index that the market price of his company would rise after it was floated.

Davidson netted around £6m when the shares rose.

City Index hedged the position by entering into an agreement with Dresdner. The bank subsequently purchased four-fifths of the available company stock. The price rose and Davidson won his bet.

There is no suggestion that either Dresdner or City Index did anything wrong, but the FSA will want to examine the transaction to establish whether tigher rules will need to be introduced. On the face of it, this transaction looks somewhat unethical.