FMA probes claims of inside trading, market manipulations

Photo/ Richard Robinson

New Zealand's financial regulator is probing two possible instances of insider trading and market manipulation, after receiving 15 complaints about such behaviour in the past year.

The Financial Markets Authority has today released its annual report into investigations and enforcement and said it had an active probe into a complaint of insider trading and five ongoing cases where it had only made preliminary inquiries.

It was also investigating one complaint about market manipulation after receiving three from either the NZX or members of the public in the year to June 30.

The regulator last month concluded its first market manipulation case against Brian Peter Henry, which resulted in the Diligent founder paying a $130,000 penalty.

The FMA in the report today said that one of its other probes into market manipulation "highlighted the importance of brokers keeping clear records of client instructions and giving careful consideration to the nature and impact of client trading".

The FMA spent $400,000 more chasing Henry than it got back from him through the penalty but said in the report that action which deters misconduct in secondary markets was of it "compliance priorities".

"Market manipulation can be hard to detect but the consequences on market integrity are great. Taking action that deters misconduct in secondary markets and provides clear guidance as to acceptable conduct is one of our compliance priorities" the report said.

Read the full FMA report here:

The Financial Markets Authority received fewer complaints in its 2014 financial year after the David Ross Ponzi investigation sparked a flood on inquiries in 2013, and had just 30 open cases at the end of the period.

It received 839 complaints in the 12 months ended June 30, down from 1,273 a year earlier when investors in the Ross Asset Management scheme became aware of its impending collapse.

Of those complaints 68 were referred to the enforcement team, who were engaged in 76 inquiries and 29 litigation matters in the year. Out of those probes, 46 were closed in the year, leaving 30 open cases on the enforcement team's desk as at June 30, down from 50 a year earlier, and 13 cases before the courts.

The regulator said secondary market issues "were a significant area of focus" accounting for about 21 per cent of inquiries and investigations, including potential insider trading, market manipulation and disclosure breaches.

There were 22 complaints over substantial shareholder notices and directors and officer notices, with one still open at June 30. Six other continuous disclosure probes were carried out, of which one was still ongoing.

"We anticipate continued focus on a range of secondary market conduct issues, typically in conjunction with NZX," the report said. "Identifying and reacting to possible instances of insider trading and market manipulation is central to our mandate."

The 2014 financial year encompassed the introduction of the Financial Markets Conduct Act, which overhauled the country's decades-old securities law with a goal of improving public confidence in New Zealand's capital markets.

The FMA report said the regulator's first focus is to help market participants understand their obligations under the new law, and will encourage the market to press for high standards of corporate governance.

- with BusinessDesk