The chief executive of investment bank Carnegie resigned on Friday after regulators called for sweeping management changes following a trading scandal and fined the bank 50 million Swedish crowns ($7.7 million).
In the harshest judgment it has ever issued, the Financial Supervisory Authority (FSA) said a new Carnegie chief executive should be found to replace Stig Vilhelmson and the entire board should step down.
But the regulator stopped short of suspending the bank's license.
Carnegie shares were up 5.9 percent at 129.25 crowns at 0950 GMT. There had been fears in the market that the bank could be banned from operating.
The FSA's ruling comes at a sensitive time as Carnegie was appointed by the government just two months ago to advise on the sale of mortgage firm SBAB.
The government declined to comment on whether the FSA's ruling would have any influence on Carnegie's role as an adviser, but Financial Markets Minister Mats Odell was due to hold a news conference on the subject later on Friday.
The head of the government's official panel for its 150 billion privatization program -- the biggest in the country's history -- is Karin Forseke, former chief executive of Carnegie, who left the firm in early 2006.
Carnegie said Vilhelmson had resigned effective immediately, although there was no word about what the board would do. The bank said Anders Onarheim, head of investment banking and Norwegian operations, would take over as acting chief executive.
Carnegie said in May its net profits from 2005 to 2007 would be cut by 227 million Swedish crowns after three employees had inflated profits by overstating trading positions.
The bank eventually took a 315 million crown write-down as a result of the scandal.
All this is very serious. We could have pulled their license, but we see that there is hope that their measures are sufficient, said Ingrid Bonde, director general of the regulator.
We demand that the board replaces the CEO who must not be allowed to remain a board member either. The guidance and control which we have criticized involves the entire bank and the bank management, Bonde said at a news conference.
Lars Malmstrom, a spokesman for the regulator, told Reuters the 50 million crown was the maximum fine on its books and that this was the first time it had been used. Malmstrom said that as far as he knew, this was also the first time the regulator had asked an entire board to step down.
Carnegie's chairman vowed to work with regulators.
We have just received the Financial Supervisory Authority's report. We will study the report in detail and revert to the FSA, said Carnegie Chairman Christer Zetterberg.
Changes in the board of directors of Carnegie Investment Bank AB will be managed in close collaboration with the nomination committee, Zetterberg said.
Separately, one Carnegie employee who had been arrested in connection with the affair will now be charged with insider trading, a Swedish prosecutor said.