MR No. 2015 – 01
23 January 2015
The Financial Markets Authority (FMA) has issued a warning to an individual online trader in relation to suspected market manipulation trading conduct.
Following an investigation, the FMA concluded that the individual has likely breached the market manipulation prohibitions contained in sections 11B and 11C of the Securities Markets Act 1988.
The FMA has reached the view that the person engaged in trading that resulted in no change in beneficial ownership in the shares they traded. This is presumed to be market manipulation under the Securities Markets Act.
The FMA also considers that the individual engaged in ‘bait-and-switch’ trading conduct. The FMA considers that the trades were likely to have the effect of creating a false or misleading appearance about the extent of active trading in, supply of, price for, or value of the shares traded. Such conduct may attract other traders into the market. This type of conduct is also prohibited under the market manipulation prohibition provisions in the Securities Markets Act.
In reaching its decision to issue a formal warning, on a no names basis, the FMA took into account a number of factors including:
“We welcome trading in secondary markets, but we want to ensure that those who trade are aware of and follow the rules that are designed to ensure that the secondary markets operate efficiently and fairly. People who trade must ensure that they know what conduct is prohibited, before they trade,” said the FMA’s Director of Enforcement and Investigations, Belinda Moffat.
“We consider that a warning in this case is a proportionate and effective response to the activity identified. Investigating and taking action against conduct such as insider trading and market manipulation that undermines the integrity and reputation of our markets is one of the FMA’s key strategic priorities,” she said.
The FMA will work closely with NZX and online trading platform providers to increase the information available to casual online traders and to raise awareness and understanding of the rules and prohibitions relating to trading conduct.
This case was referred to the FMA by NZX. The warning can be viewed here.
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There are criminal and civil remedies available for breach of the market manipulation provisions of the Securities Markets Act.
Criminal liability for false or misleading appearance of trading is contained in section 11D of the Securities Markets Act, which provides that a person who contravenes section 11B commits an offence if the person has actual knowledge that the act or omission will have, or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance:
a) with respect to the extent of active trading in the securities of the market issuer; or
b) with respect to the supply of, demand for, price for trading in, or value of those securities.
The maximum penalty under section 43 of the Securities Markets Act is 5 years imprisonment or a fine not exceeding $300,000 for an individual or $1,000,000 fine for a body corporate.
Under section 42R of the Securities Markets Act, the FMA can also apply for a civil pecuniary penalty order and declaration of contravention of the market manipulation provisions of the Securities Markets Act. The maximum amount of a pecuniary penalty is the greater of:
a) the consideration for the transaction that constituted the contravention (if any); or
b) 3 times the amount of the gain made, or the loss avoided, by the person in carrying out the conduct; or
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