FMA warns trader on market manipulation

Friday 23rd January 2015

The Financial Markets Authority has formally warned an unnamed trader over market manipulation for buying the same shares they were trying to sell.

The individual engaged in "bait-and-switch" trading, where a trader buys and sells their own shares to themselves, giving the market the false impression there is more volume, demand and value in the stock, and is prohibited under the Securities Markets Act, the market regulator said in a statement. A spokeswoman for the FMA wouldn't say who the trader was or which listed company's shares were involved and whether it was on the NZX's main board or the NZ Alternative Index.

The trader entered a number of buy and sell orders for the stock which resulted in four trades but no change of ownership, having first placed a sell order which exceeded the best asking price for the shares at the time, according to the formal warning notification. The individual’s trades represented more than half of the on-market trading volume for the shares at the time and lead to an increase in the market price for the shares.

"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,” FMA’s director of enforcement and investigations, Belinda Moffat said. “We consider that a warning in this case is a proportionate and effective response to the activity identified."

The FMA said the inexperience of the trader, who was not aware trading with themselves was prohibited and used an online trading platform which did not provide any guidance, and their subsequent cooperation with investigation factored in its decision to not publicly identify those involved when issuing the formal warning. The trading occurred over a short period of time and the trader did not enjoy any significant personal gain, the regulator said.

The case was referred to the regulator by the stock market operator, NZX.

BusinessDesk.co.nz

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