Police seize City traders

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City of London police and 40 officials from the Financial Services Authority raided addresses in London and the South-East.

It was described as part of "a major ongoing investigation into insider dealing rings". Most of the arrests were at homes rather than businesses. The individuals are waiting to see if they will be charged and have not been named.

The FSA has long believed that insider trading is rife in the City but has not managed to get any convictions so far.

City sources say computers and paperwork were seized as part of an investigation that has been going on for months.

Insider trading, where investors with knowledge of events place bets on share price movements ahead of formal announcements, is regarded as deeply unfair to honest investors. In 2006, the FSA said it believed that insider dealing had taken place ahead of a third of large takeover deals. Bankers and stockbrokers involved in such deals would be foolish to invest personally in the shares of the companies concerned, but they could tip off friends or relatives.

With stock markets in turmoil and the economy rocked by the credit crunch, the FSA and the Government believe that clamping down on City fraud is more vital than ever. The amount of money involved in the suspected insider trading ring under investigation is not known, but is likely to run into millions of pounds.

This latest move comes days after the FSA charged Malcolm Calvert, a former partner at the Queen's stockbroker Cazenove, with 12 counts of insider dealing between 2003 and 2005. If found guilty, he can expect a prison sentence of up to seven years.

Lawyers say that if the FSA, led by former banker Hector Sants, gets a major scalp it would prove a huge deterrent to others. Its powers are being extended, including the introduction of US-style plea-bargaining to encourage people to give evidence.