Social media could be looming as the next battleground for market manipulation as the retail rush to online share trading platforms ramps up.
Last week the Financial Markets Authority (FMA) fired its first shot at small-time share-price fiddlers after censuring an anonymous trader for market manipulation.
While the case in question did not involve social media-based manipulation, a FMA spokesperson said the regulator was monitoring online channels for signs of abuse.
“… we would be concerned if there was evidence that people were making statements on social media about a stock that they know, or ought to know, contains information that is false or misleading,” the spokesperson said. “This can amount to information-based market manipulation. We won’t divulge the details of our surveillance tools, but we will consider circumstances we become aware of where there is potential for harm due to market manipulation via social media.”
The FMA issued a formal warning to the unnamed offender last week after the NZX regulatory arm (now the standalone entity, NZ RegCo), noted unusual activity on the trader’s account in April.
“NZ RegCo referred the case to the FMA, having been alerted to the activity by the person’s trading account provider as well as by its own surveillance activities,” the spokesperson said.
“We won’t be sharing details about the individual, the place where the trading occurred, or which listed company the individual traded shares in. However, we can say the individual has had a trading account for several years and traded on their own behalf.”
Over the last year retail investors have flocked to online share-trading platforms across the world, including in NZ via outfits such as Sharesies and Hatch, as technology has freed up direct access to markets previously intermediated by relatively high-cost brokers.
Sharesies, for instance, reported member numbers almost doubled over 2020 to more than 250,000. The Wellington-based firm also capped off a stellar run last week in a $25 million capital-raise that values the business at about $150 million and saw US and Australian private equity investors join the register.
As reported here, Sharesies, currently boasting about $850 million under management, plans to launch in Australia next year as well as add ASX equities to its product suite. But lesser-known rival, Tiger Brokers, beat Sharesies to the punch last week, adding ASX stocks to its online trading platform.
The China-based Nasdaq-listed Tiger (which trades under the Up Fintech name) earned its NZ broking accreditation last April, about the same time as Sharesies. Tiger NZ chief, Vincent Cheung, said it now offers direct access for local share investors to six exchanges across NZ, Australia, China, Hong Kong, Singapore and the UA.
Cheung said in a statement that “access to another popular exchange such as the ASX will allow investors to further diversify their investment portfolio”.
“Tiger Trade has experienced increasing numbers of account openings and transactions,” the release says. “Retail investors are increasingly comfortable using online and mobile trading platforms, reflecting the growing digitisation of the financial services industry.”
Meanwhile, Nick Kynoch, FMA general counsel, warned the fresh batch of online share investors that market manipulation was a “serious breach of the law” regardless of the trade size.
“We know there are many relatively new investors participating in New Zealand’s share market and we want to remind all investors that they are responsible for their own actions. Ignorance of the law is no excuse. All trades must be for legitimate purposes,” Kynoch said.
“The trading by this individual illustrated conduct that can undermine the integrity and reputation of our markets and have a serious impact on investor confidence. The FMA will continue to investigate and take appropriate action against this type of activity.”
Traditionally regarded as a professional sport, market manipulation is also notoriously difficult to prosecute. However, the FMA notched up a famous win against former Milford Asset Management portfolio manager, Mark Warminger, in 2017 on market manipulation charges – albeit only proving the case in two out of the 10 allegations.
Warminger was fined $400,000 and incurred a five-year management ban. The unknown trader at the centre of the latest FMA market manipulation probe garnered only a formal warning as the regulator “did not believe the circumstances of this case warranted the use of significant costs, resources and the courts”, Kynoch said.
“A warning sends a strong message to this individual and reinforces the provisions set out in the law to investors and the industry,” he said.