NZX Market Supervision Public Statement

3 June 2010

NZX Market Supervision Public Statement


Introduction

The NZ Markets Disciplinary Tribunal (“NZMDT”) has considered a Settlement Agreement in respect of a Statement of Case brought by NZX Market Supervision (“NZXMS”) against a Market Participant (the “Participant”). In accordance with the settlement reached between NZXMS and the Participant, and approved by NZMDT, the identity of the Participant has been omitted from this public statement.

The Statement of Case related to alleged breaches of NZX Participant Rule E10.15.1(f) and NZX Participant Rule 11.16.5(b) in respect of trading by a client of the Participant (the “Client”).

The NZXMS investigation of this matter arose from NZXMS’s surveillance of the NZDX Market.

NZX Participant Rules
NZX Participant Rule E10.15.1(f) requires that:
“All Trades shall be reported in the Trading System on a gross basis excluding any reasonable brokerage or fees incurred;”
NZX Participant Rule 11.16.5(b) requires that:
“Each Client Advising Participant must disclose on a client’s contract note:
…
The full extent of any commission and margin charge; and
…”

Description of Breaches

1. Breach One – NZX Participant Rule E10.15.1(f)

(a) An NZXMS investigation uncovered that, over a two month period, the Participant reported 19 trades to market at a price which included the Participants brokerage fee.

(b) Reporting Trades to market inclusive of brokerage fees is a breach of NZX Participant Rule E10.15.1(f).

(c) The Participant has admitted this breach.

(d) NZXMS accepts the contention of the Participant that the breach resulted from the specific request of the Client as set out in paragraph 2(c) below.


2. Breach Two – NZX Participant Rule 11.16.5(b)

(a) Following the trading activity to which Breach One relates, the Participant provided the Client with contact notes which, while it included the brokerage charged, did not separately disclose the Participant’s brokerage fee.

(b) The provision of contract notes to a client, which do not disclose the full extent of any commission or margin charges, is a breach of NZX Participant Rule 11.16.5(b).

(c) The Participant has admitted this breach. NZXMS accepts that this arrangement was entered into at the request of the Client who required the brokerage to be presented in that way. However, NZXMS does not consider it appropriate for Market Participants to contract out of the NZX Participant Rules without express permission from NZXMS.

Decision

NZXMS and the Participant have reached a settlement in respect of the above breaches that:

(a) a penalty of $6,500 (plus GST, if any) be imposed on the Participant for the above breaches in aggregate and that such penalty shall be paid into the NZX (Discipline) Fund;

(b) the Participant will pay the costs incurred and invoiced for both NZXMS and the NZMDT (plus GST, if any); and

(c) this public statement will be published.

The settlement has been approved by the NZMDT, as contemplated by section 10 of the NZMDT Rules, and as such, the Settlement Agreement is the determination of NZMDT.