First NZ Capital censured, fined after trading error
First NZ Capital censured, fined after trying to fix up trading error
By Paul McBeth
May 6
(BusinessDesk) - First NZ Capital Securities, the research
firm and broking house, has been publicly censured and fined
$15,000 by the New Zealand Markets Disciplinary Tribunal
after trying to fix up a trading error without informing the
market operator.
The stock market's disciplinary
tribunal found First NZ breached stock market rules by
failing to notify NZX immediately of an error that had a
market impact, it said in a statement. The broking firm's
decision not to inform the stock market operator meant NZX
wasn't able to take the appropriate regulatory response, and
was aggravated by First NZ's attempts to rectify the problem
itself.
"The practice of market participants taking
matters into their own hands has the potential to impact on
market integrity and bring both the market and NZX into
disrepute," the tribunal said in its decision. "The penalty
is intended to send a clear message that self-correction of
errors by market participants is
unacceptable."
Policymakers are trying to restore
public confidence in capital markets, introducing a raft of
legislation in recent years aimed at improving disclosure,
making it easier for retail investors to understand offer
documents, and beefing up oversight of financial markets and
penalties for egregious misconduct.
First NZ's error
arose from one of its clients placing an order on July 28,
2014 through the broker's direct market access (DMA) system
to sell 8,194 shares in an issuer on the main board at
market price, which was stopped by the system's filter to
prevent trades that would cause a movement of more than 3
percent in the last traded price. The order was redirected
to a trading desk and manually put through by a dealer,
resulting in six trades of 4,788 shares being executed at
five different price levels and prompting a decline in the
share price to $2.70 from $3.13.
The broking house
then cancelled the outstanding portion of the order, and
subsequently placed four buy orders, one of which was with a
pre-existing client for 1,000 shares at $3.15.
On Aug.
1, 2014, First NZ then deleted the three remaining buy
orders it had placed leaving them unfulfilled, and
subsequently confirmed in later correspondence with NZX that
its dealer had clicked through the full order to market by
mistake.
NZX submitted the broker breached rules by
failing to notify it immediately of the error, and because
it failed to ensure its conduct helped promote and maintain
an orderly market.
That the error was unintentional
and no clients were adversely affected were seen as
mitigating factors, though NZX submitted the broker's
attempt to remedy the error and similar breaches in 2012
were claimed to be aggravating factors.
First NZ
disagreed with the view that the previous breaches were an
aggravating factor, but admitted the mistake and accepted
the penalty.
The tribunal accepted First NZ's
submission that mistakes happen, but said it was concerned
the broking firm didn't have adequate systems in place to
manage errors appropriately.
"The tribunal also considers FNZ needs to address its systems for dealing with orders that are caught by DMA filters," it said.
(BusinessDesk)