Warminger's trial shows traders' purpose important
Milford Asset Management portfolio manager Mark Warminger's trial has helped to show that the purpose of a trade, rather than solely its effect, may be the defining factor in determining market manipulation.
Monday, March 13th 2017, 6:00AM
by Susan Edmunds
Warminger was found to have manipulated the market twice in 2014.
The Court found against him in relation to his trading in Fisher & Paykel Healthcare and a2 Milk Company shares.
He was found in both cases to have manipulated the market by increasing the offer quote and price for the shares and maintaining them at a higher level than would otherwise have been the case.
The trades created a misleading impression of the price of the shares on the day.
Sarah Armstrong, Polly Pope and Alex Mackenzie of law firm Russell McVeagh said the judgement was significant for the financial sector in this country.
"In particular, it confirms that a trader’s subjective purpose - as determined from contextual factors such as emails and phone calls - is relevant to a finding of manipulation," they said.
There had been a lack of local precedent.
"Although the relevant provision was s 11B of the now-repealed Securities Markets Act 1988 Act, the judgment remains relevant as this provision is now contained in substantively identical language in s 265 of the Financial Markets Conduct Act 2013."
It had previously been unclear whether a trader's purpose had any relevance in determining whether manipulation had happened.
The FMA argued it was important because it was not necessary to prove any actual effect of the trades.
Warminger's defence team said the FMA case relied on there being an effect of manipulation but that did not exist.
Justice Geoffrey Venning found, while it was not necessary for the FMA to establish Warminger's purpose to demonstrate manipulation had happened, his purpose was relevant.
In order for a person to be found to have manipulated the market, the FMA is not required to show that any trader was actually affected by the person’s trading activity.
He said purpose could be the key factor that determined culpable manipulation.
Chapman Tripp said the case had always been going to present challenges because the small New Zealand market was susceptible to concentration of ownership with relatively few broking firms and relatively few stocks that were actively traded by institutional investors.
"Justice Venning's careful and thorough assessment of the New Zealand provisions in light of overseas precedents will not quell debate but is significant in setting out an analytical framework for participants and advisers to distinguish between legitimate and illegitimate trading practices."
The parties involved in the case have been instructed to file a joint memorandum setting out the process to determine whether the Court should make a pecuniary penalty, and if so, how big it should be.
Chapman Tripp said the court's reasoning would provide a useful framework for the FMA's upcoming guidance note on wholesale conduct.
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