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FMA says NZX market surveillance has improved

Thursday 27th June 2019

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Stock exchange operator NZX has made positive changes to its market surveillance since concerns were raised a year ago, the Financial Markets Authority's latest annual review found. 

"This year’s review acknowledges the positive changes made by the market surveillance team during the review period and the FMA supports the NZX’s approach to the continuous improvement of the team," it said.

Last year, the FMA concluded that the depth of market knowledge and experience in the supervision unit was insufficient to adequately monitor NZX’s markets.

The regulator today noted NZX recruited a principal analyst into the market surveillance team in September last year. During interviews for the latest review, the FMA was told that analyst provided cross-team specialist support, particularly on the identification and review of algorithmic trading. It also heard about training initiatives he has delivered in relation to algorithmic trading.

"The principal analyst told us he has seen an improvement in the market surveillance team’s ability to recognise patterns presented by a series of orders," it said. 

During the review, FMA met with representatives from NZX trading participant firms. "The feedback we received indicated a general improvement in the capability of the market surveillance team following the recruitment of the principal analyst," the authority said.

The FMA said NZX Regulation took a number of steps to improve its preparedness for market developments, which was an area of concern last year. 

In particular, NZX completed its thematic review of algorithmic trading activity in its markets and published a report in December 2018. As part of the review, the market surveillance team collaborated with market participants to improve its understanding of the scope and scale of that trading. 

The market regulator said it will continue to focus on algorithmic trading in the 2019 period, including their impact at the market close, how well NZX participants manage risks around their use, and in developing guidance on direct market access trading. 

The FMA said its review also found NZX's surveillance unit also gave attention to international surveillance topics during the review period. 

Last year, the FMA had concerns about the quality of analysis, and the timeliness of information in relation to market surveillance team referrals.

During this year's review, the regulator found analysis and the robustness of processes have improved. While it received fewer referrals from NZX during 2018, it observed an improvement in the quality of analysis as the year progressed, it said. 

The FMA also obtained key process documents, met with members of the team and attended a session at NZX’s offices to observe how the unit uses the SMARTS surveillance platform to assess trading alerts.

"Compared to 2017, we saw improvements in the way the team recorded both enquiries, and the outcome of those enquiries against trading alerts," it said. 

NZX shares recently traded up 0.9 percent at $1.11 and have gained 8.9 percent so far this year. 


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