The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has filed High Court civil proceedings against Kok Ding Cheng, an experienced retail investor based in Auckland, for alleged market manipulation of NZX-listed shares of Rua Bioscience Limited (RUA).
The case centres on five small orders for RUA’s shares that Mr Cheng made over a 10-day period during late 2020 via a broking account he held with ASB Securities. The FMA alleges that Mr Cheng’s orders lacked a genuine commercial purpose and were instead made for the purposes of increasing the price and/or demand for RUA shares at a time when he held a material shareholding in the company.
The FMA’s claim contains five causes of action, each alleging contraventions of the trade-based market manipulation prohibitions in the Financial Markets Conduct Act 2013 (FMC Act). The FMA is seeking a declaration of contravention, a civil pecuniary penalty and costs.
The proceeding follows an investigation by the FMA after NZ RegCo (NZX’s frontline regulatory agency) referred the conduct to the FMA. NZ RegCo referred the conduct after ASB Securities had earlier reported potential concerns about the orders. NZ RegCo and the FMA work closely together to detect and respond to market manipulation on licensed markets.
RUA is not a party to the proceeding. The case was filed in the Auckland High Court.
Margot Gatland, FMA Head of Enforcement, said: “Market manipulation undermines confidence in financial markets because it means investors can’t trust prices or market activity to be genuine. We take cases of market manipulation seriously to ensure New Zealand’s markets reflect genuine supply and demand, in order to preserve their integrity and reputation.
“We considered Mr Cheng’s conduct warranted a strong response to deter market manipulation. This case is an important reminder that trade-based market manipulation can occur when trading through online share brokerage accounts. Investors should be careful to understand their obligations when trading online.”
The FMA acknowledged that ASB Securities has systems and controls in place that allowed it to detect and refer concerns to NZ RegCo. This demonstrates the critical role that good systems play in detecting and preventing potential misconduct in markets.
