FMA warns ‘an individual’ on alleged misconduct and deception
Staff Reporter
Wellington, December 10, 2020
The Financial Markets Authority (FMA) has issued a formal warning to an individual for conduct that was likely to have amounted to market manipulation.
Following an investigation, the FMA concluded that the individual had likely created a false or misleading appearance regarding the demand for, and price of, shares of a listed company, which is a breach of the Financial Markets Conduct Act.
What the person did
The alleged misconduct occurred in April 2020, with the individual trading on their own behalf via an online trading account. It involved the individual buying a small parcel of shares at a price materially higher than the last traded price, while attempting to sell a larger parcel of the same shares at the higher price. Trading of this nature is likely to trigger surveillance alerts, which it did in this case. The Surveillance team of NZ RegCo (the NZX’s regulatory agency, formerly NZX Regulation) referred the case to the FMA, having been alerted to the activity by the person’s trading account provider as well as by its own surveillance activities.
Serious breach
FMA General Counsel Nick Kynoch said market manipulation is a serious breach of the law, even if the volume and value traded is low.
“New Zealand’s market manipulation provisions seek to ensure our equity markets reflect genuine supply and demand and play a critical role in preserving the integrity of the share market. We know there are many relatively new investors participating in New Zealand’s share market and we want to remind all investors that they are responsible for their own actions. Ignorance of the law is no excuse. All trades must be for legitimate purposes,” he said.
Mr Kynoch said that the trading by this individual illustrated conduct that can undermine the integrity and reputation of our markets and have a serious impact on investor confidence.
The FMA will continue to investigate and take appropriate action against this type of activity.
Appropriate response
The FMA determined a formal warning was the appropriate and proportionate response, after taking into account the small size and low value of the trade, the individual’s personal circumstances and trading history, the public interest in issuing court proceedings, and that this was a single act of potential misconduct by the individual. The person will not be named.
Mr Kynoch said that formal warnings are an important part of our regulatory toolbox where we have concerns about particular behaviour.
“We did not believe the circumstances of this case warranted the use of significant costs, resources and the courts. A warning sends a strong message to this individual and reinforces the provisions set out in the law to investors and the industry,” he said.
In some circumstances, market manipulation may amount to a criminal offence and the most serious instances can result in imprisonment (maximum of five years) or a substantial fine ($500,000 for an individual or $2.5 million for a company). This reflects the gravity of the offending and the serious harm that market manipulation can cause.
More information for investors about market manipulation can be found on the FMA website.
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