Broker Jarden has been publicly censured by the NZ Market Disciplinary Tribunal and will pay a fine of $40k after reaching a settlement agreement with the NZX over breaches in trading rules.
The breaches centred around a client of Jarden's which had direct market access - the ability to trade directly in shares using Jarden's system. An underlying user of that client used the access to place orders to sell shares in Mainfreight on June 26 and caused its share price to fall.
The activity was picked up by a senior dealing team member at Jarden who contacted the client to question the trading and was told that the client's underlying user had mistakenly failed to apply a volume cap on the trading.
It triggered four alerts in Jarden's system which were reviewed by its compliance team who found "no concerns."
But the NZX's regulatory arm NZ RegCo also began investigating after it received an alert following Mainfreight's rapid fall in share price.
NZ RegCo found Jarden had breached rule 8.8.1 by not ensuring its conduct promoted and helped maintain an orderly market and rules 10.2.2 (a, b and f) by accepting the orders without considering whether they were consistent with recent trading in Mainfreight, whether they would materially affect Mainfreight's share price and whether they may have formed a series of orders.
It also found Jarden had breached rule 10.8.1 (a) by not ensuring it had appropriate direct market access filters in place.
The Tribunal considered there were a number of aggravating factors in the case; that the trades significantly contributed to a 9.8 per cent fall in Mainfreight's share price over a 40 minute period.
It also cited the fact Jarden did not have appropriate direct market access filters in place for almost a year and its compliance monitoring of its direct market access was inadequate despite being advised of this on two previous occasions by NZ RegCo.
Jarden had also been subject to previous action by NZ RegCo for a failure to have adequate filters in place.
Counting in its favour was the fact Jarden had now established a compliance monitoring task to check the assignment of its direct market access filters, and updated its post-trade monitoring policies.
"Taking these aggravating and mitigating factors into account, the Tribunal consider that, while the breaches fall within penalty band three...a penalty at the lower end of the available penalty range is appropriate, together with this public censure."
As well as paying the financial penalty Jarden must also pay the costs incurred by the Tribunal and the NZX in bringing the proceeding.