New Zealand FMA issues trader with $130,000 fine as regulations toughen

Financial regulation with regard to electronic trading businesses in New Zealand had spent a long period of time being regarded as a relative soft touch, with the Antipodean nation bearing a reputation of being an inferior relation to the well-established Australian capital markets economy and astute regulatory authority. Many companies with virtual offices set up registration in New Zealand, most with a view to approaching the Asia Pacific client base without having to answer to any regulatory body or even establish operations in New Zealand.

This was brought to an end last year, when the Financial Markets Authority (FMA) of New Zealand, led by CEO Sean Hughes, stepped up its regulatory oversight, requiring all companies to be regulated and overseen by the FMA, have physical operations in New Zealand, and ensure that good practice is adhered to.

Whilst New Zealand’s financial markets economy is far less developed than that of Australia and is not so well recognized on the world stage as a major jurisdiction in which to establish an electronic brokerage, it is clear that some of the recent enforcement activity by the FMA is demonstrating the nation’s mettle in terms of attempts to join the ranks of prominent western regulatory authorities.

Today, a trader by the name of Brian Peter Henry has admitted all of the FMA’s allegations that he breached the market manipulation prohibitions in the Securities Markets Act 1988. FMA’s claims followed a referral from NZX and arose out of Mr Henry’s trading in shares in the NZX-listed Diligent Board Member Services (Diligent).

At the Auckland High Court Mr Henry admitted his trading contravened section 11B of the Securities Markets Act 1988, and a pecuniary penalty of $130,000 has been imposed by the Court today.

Justice Venning said in his judgment, “The conduct that Mr Henry engaged in undermines the development of a fair, efficient, and transparent financial market. Such market manipulation is likely to undermine the integrity of the NZX and jeopardise the confidence of both overseas and domestic investors in the NZ security markets. A pecuniary penalty is appropriate.”

Mr Henry admitted six breaches of the Securities Markets Act 1988. On two occasions he executed ‘wash trades’, namely trading in Diligent shares with himself, which moved the Diligent share price without any change in the ownership of the shares. He admitted to creating a false or misleading appearance of trading in Diligent shares on four other occasions, by:

1: Placing multiple orders for buying (bids) and selling (offers) Diligent shares without completing the trade – otherwise known as ‘layering’. This is a practice that artificially inflates the share price and gives a false appearance of activity.

2: Giving an artificial impression of the level of trading interest in Diligent shares.

3: Forcing other buyers to bid at higher prices in order to trade.

4: Setting the market closing price of Diligent shares.

Belinda Moffat, FMA Director of Enforcement, said “misconduct like Mr Henry’s undermines the integrity and trust in the fair and orderly operation of the equities market. The public want and deserve to invest in the markets with confidence that any trading activity reflects genuine supply and demand for shares in the market.”

This is the first case of market manipulation brought in New Zealand. Investigating and responding to misconduct in New Zealand’s secondary markets, whether it be insider trading, market manipulation or disclosure breaches is a priority area of focus for the FMA.

“There is a strong public interest in deterring share trading that is false and misleading. Where there is a case that meets the standard of evidence required and where court action satisfies the public interest, then FMA will take proceedings to ensure confidence in the development of fair, efficient and transparent markets,” said Ms Moffat.

Whilst the fine of $130,000 is less than it may have been had this been conducted in North America, it is still a significant punitive measure.

The FMA had shown its teeth last year as a result of a joint investigation which it conducted with the the Serious Fraud Office (SFO) into David Ross’s infamous Ponzi scheme which he operated between June 2000 and September 2012 losing investors’ funds to the tune of $ 115 million NZD, the largest Ponzi scheme in New Zealand’s history. The number of people affected was quite substantial with more than 1200 victims reporting to have invested in the scheme. Mr. Ross’ crime was committed prior to the establishment of the FMA, however as a result of the investigation he was brought to book and subsequently jailed.

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New Zealand FMA issues trader with $130,000 fine as regulations toughen


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