AUG 01 2017
All Insights

Warminger Market Manipulation Case Closed

On 31 July 2017, the Financial Markets Authority (FMA) announced that its market manipulation case against Mark Warminger has been resolved.  The case offers some key learnings for organisations and individuals keen to avoid the attention of the regulator in relation to trading conduct on listed markets.


Mr Warminger was a fund manager at Milford Asset Management.  The FMA became concerned that he had manipulated the NZX market for listed securities in breach of section 11B of the Securities Markets Act 1988 (equivalent provisions now appear in the Financial Markets Conduct Act 2013).  Following a intensive investigation, the FMA brought High Court proceedings against Mr Warminger alleging that on ten separate occasions he had acted so as to deliberately create a false or misleading appearance of trading in certain stocks. 


Early on, Milford reached a settlement with the FMA.  Accepting responsibility for providing inadequate oversight and control of Mr Warminger's trading conduct, Milford agreed to pay a pecuniary penalty of $1.1m and make a contribution to the FMA's costs of $400,000.

Mr Warminger opted to go to trial.  The High Court held that two of the FMA's ten allegations were made out.  On the first, the Court found that on 27 May 2014 Mr Warminger had bought small volumes of Fisher & Paykel Healthcare shares using direct market access (DMA) with the intention of pushing the market price up so that he could then sell a large volume by way of a market crossing.  On the second, the Court found that on 9 July 2014 Mr Warminger had again bought small volumes of a2 Milk shares using DMA in order to artificially maintain the market price.

The High Court imposed a pecuniary penalty of $400,000 and a five year management ban.  Both Mr Warminger and the FMA appealed.  Those appeals have now been withdrawn, which means that the High Court decisions will stand.

Key points

Traders and organisations can draw a number of key learnings from the case:

  • DMA can be dangerous  Here, Mr Warminger executed numerous small and seemingly innocuous DMA trades with the apparent objective of nudging up the price for a particular stock.  The FMA can and does monitor DMA activity, and will not hesitate to investigate suspicious trading.  As in this case, one instance of questionable trading can lead to a wholesale review of a trader's activities.
  • Context is everything  The Court viewed Mr Warminger's DMA activity in light of his email and phone communications with other traders, and relied heavily on that evidence in coming to its conclusions as to Mr Warminger's purpose and knowledge of wrongdoing.  The FMA has statutory powers to compel production of such evidence.
  • Incentives are important  Mr Warminger was a heavily goal-driven professional but had been under-performing against his benchmark at the time of the a2 trades.  That had in turn led to increased pressure from his managers.  Demands for consistent out-performance must be balanced with a strong compliance culture, to mitigate the risk of individuals over-stepping the line.
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