Financial Markets Authority headquarters in Auckland. (File photo) Photo: Google Maps
Concerns are being raised about the tone of the Financial Markets Authority report on insider trading, which could already be having a chilling effect on capital markets transactions.
Law firm Chapman Tripp said the FMA report on 'shadow insider trading' published in August may exacerbate the trend of falling confidence in the regulator, which was highlighted in the FMA's 2024 annual report.
"We are also concerned by the statement that shadow insider trading is 'common industry practice'," Chapman Tripp partners said in written critique of the report.
"The FMA does not offer any evidence to support this assertion, nor does it appear to have undertaken any industry consultation ahead of publishing its report."
Chapman Tripp partner Rachel Dunne said the FMA's overly simplistic approach and sweeping generationalisations were "unhelpful".
"You could argue that any capital raising by a major listed issuer is going to have a depressed impact on other share prices in New Zealand," Dunne said.
Such restrictions had potential to compromise capital raisings, block trades, and M&A activity for all NZX listed issuers.
She said there were a range of factors to consider in assessing whether or not a capital raising by one issuer may have any impact on another issuer.
"I'm surprised to have seen this report put out without consultation with the industry. I suspect that a gentle reminder might have been sufficient.
"We've suggested that they label the current report as a consultation draft, and they use this opportunity to speak with participants in the market to understand what current practices are, so that they have the concept that the participants are mindful of their insider trading obligations, and then to think through how they might present this in a more useful position for the market."
The FMA's approach was expected to place limits on price discovery, with investors being prevented from trading in listed issuers when in possession material information about another issuer, which could already be having a negative impact on capital raisings.
"At a time when the Government and NZX are continuing to explore ways to remove compliance barriers and encourage both our existing issuers to remain listed on NZX and listing aspirants to join NZX, the FMA's report has dealt a blow to confidence in the effective regulation of our capital markets.
"We need a regulator who understands how the market operates day-to-day, but that also understands that you can't make new law by issuing consultation or draft reports like this."
Dunne said the FMA's report was also drawing flak from other market participants.
FMA's executive director of response and enforcement, Louise Unger, said the shadow insider report was prompted the FMA's inquiries into trading activity that concerned it.
"Insider trading erodes trust and confidence in public markets. It is therefore important that we provide information to industry about insider trading conduct we believe is not permitted by the law and risks damaging market integrity.
"As we encouraged in our report, the FMA is now engaging with industry on this topic, listening to feedback. The FMA will publish an updated draft soon after industry engagements are complete."
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
