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Acceptable trading behaviour questioned

Portrait of Mark Warminger as an aggressive, emotional trader emerges as his trial for market manipulation at the Auckland High Court continues into its second week.

Thursday, October 6th 2016, 8:30AM 1 Comment

by Miriam Bell

The Milford Asset Management portfolio manager is battling charges of cross-trading and making trades to artificially set prices, which were laid by the Financial Markets Authority (FMA).

Examination of trading behaviour, particularly that of Warminger, dominated proceedings yesterday as both parties sought to establish what “normal” trading conduct might be.

First up in the witness box was First NZ Capital head of securities James Lee who was examined by Warminger’s lawyer, Michael Heron, about a range of trading activities and considerations.

These included the role screen pricing plays in trading, the role of morning order books, algorithms, the balance of the principal book, moving quotes, close orders, and auction processes.

Under examination, Lee confirmed that Warminger was a sophisticated investor and knew what he was doing with regard to all these factors.

Lee said screen pricing was a small component in the trading process and that other factors, besides what was showing on the screen, were taken into account – which Warminger would know.

During the examination, Lee said Warminger ran a reasonably aggressive fund but, while not suggestible, would listen to advice when in the right mood.

He agreed with the defence’s suggestion that when Warminger decided to buy and sell, he would just go ahead and get the trade done.

Warminger was quite an emotional fund manager, he said.

“This is quite unusual in New Zealand given we only have 14 funds. But, overseas, there is a whole class of fund managers that act in that way.”

However, the next witness to take the stand took a harsher view of Warminger’s trading behaviour.

Expert witness John McMahon, an investment industry veteran, was recruited by the FMA to look over the unusual pattern of trading behaviour in Warminger’s account.

He said Warminger was often an aggressive trader, especially on volatile stocks, which was profitable for Milford.

“But his experience transacting on the market meant he would or should have been familiar with acceptable trading practices and what was acceptable under NZX rules.

“For this reason, he would or should have been aware of the nature and consequences of his trading actions.”

McMahon provided the court with a comprehensive analysis of all 10 of the contentious trades Warminger made between December 2013 and August 2014.

He concluded that Warminger’s activity in relation to these trades created false and misleading appearances in terms of market demand, activity and pricing.

It was intended to raise prices and show strong performance and did impact in this way, he said.

In McMahon’s view, this constituted market manipulation – and price reversion was not necessary to confirm manipulation in these circumstances.

McMahon remains on the stand and will be under cross-examination today.

Meanwhile, the trial is set to continue for several more weeks and could end with significant penalties for Warminger if he is found guilty of the charges.

Tags: FMA Market Manipulation Milford Asset Management

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On 6 October 2016 at 11:37 am Pragmatic said:
If you want to change the culture, you will have to start by changing the organization

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