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Outcome of FMA investigation into Goldman Sachs NZ Ltd

MR No. 2017 – 48

15 November 2017

Outcome of FMA investigation into Goldman Sachs NZ Ltd

The Financial Markets Authority (FMA) has concluded an investigation into certain trading activity by Goldman Sachs New Zealand LTD (GS). The GS investigation was prompted by concerns arising from an investigation into trading by Mark Warminger and Milford Asset Management.

The FMA was concerned that GS trading may have been in breach of section 11B of the Securities Market Act 1988 by creating a false or misleading appearance to the price and supply of securities.

The FMA determined that pursuing enforcement action in court would not have been the most appropriate response to this case or the best way to achieve its regulatory objectives. The FMA decided to publish a report based on its concerns about the alleged misconduct in the investigation, and to educate the market about its expectations surrounding trading by brokers.

The FMA decided not to go to court based on a number of factors, each detailed in the report. These include litigation risk and limited regulatory options available in this case and the details of the specific misconduct alleged. The FMA also considered the significant cost, time and resources required in pursuing litigation would outweigh the potential benefits.

GS has explained the alleged misconduct to the FMA as facilitating trades for a client. Since the trading covered in the report, GS has ceased operating as a trading participant in the New Zealand market.

In addition to publishing a report, the FMA will take the following additional actions:

• Work with NZX to ensure the NZX Participant rules are updated to require trading participants to maintain voice recordings.

• Work with NZX to review facilitation practices by traders, including spot checks carried out on individual trades.

• Continue to engage with brokers and fund managers to ensure that the lessons from the Mark Warminger judgment on market manipulation are adopted by firms. We expect market participants to assess their existing governance and controls systems - including documentation and record keeping - to ensure brokers’ facilitation practices cannot be used to excuse misconduct.

• Consult with the Ministry of Business, Innovation and Employment to consider legislative changes to allow the FMA to refer matters directly to the NZMDT; or to enable the creation of another disciplinary tribunal for these purposes.

The FMA also considered the most proportionate response to the GS conduct would have been for the NZX to refer GS to the NZ Markets Disciplinary Tribunal (NZMDT). The NZX did not take this action.

Rob Everett, the FMA’s Chief Executive, said “Capital markets growth and integrity is a key FMA strategic priority. Successful markets rely on confident participation and any activity which threatens market integrity reduces confidence from investors and the public.

Mr Everett said, “We had a difficult decision in terms of what the appropriate regulatory response was in this instance. Ultimately, we decided that our regulatory objectives would best be met by issuing the report.”

“Publishing the results of the GS investigation enables us to demonstrate the lessons for industry in our findings. We’ll continue to engage with industry to ensure they are clear about the standards of conduct, governance, systems and controls we expect, and use this report as the basis of discussions with brokers.”

A copy of the report can be found here.


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