[Weekly Wrap] Is there any truth to market manipulation rumours?

It's probably fair to speculate that most fund managers and advisers are sitting on the edge of their seats waiting to find out if there is any truth to the on-going chatter that a portfolio manager at a leading funds management firm is being investigated for market manipulation.

Monday, February 9th 2015, 10:59AM

Judging by the strength of the rumour there is likely to be something there. As is often said there is no smoke without fire. Indeed one name is being liberally sprinkled around in conversations but no-one has yet put the name to paper (or screen).

The trouble is we don't know if there has been any market manipulation and if there was whether it was big, small, an accident, or something systemic within the firm.

One thing this situation does is test the role of the Financial Markets Authority and indeed its credibility. So far it has been steadfast in its no comment approach. It will neither confirm nor deny what is going on.

For the sake of the integrity of the markets and the industry as a whole the FMA is probably obliged to provide some details.

In the most recent case the FMA issued a warning to an individual online trader about suspected market manipulation. It choose not to name names. You can see what it said here.

There is, arguably, a case with this latest allegation, to go further as it potentially impacts thousands of investors.

Milford Asset Management portfolio manager Brian Gaynor wrote an interesting piece in his Herald column about Hanover Finance in September last year. In it he said: "The integrity of our capital markets is very dependent on public issuers putting the interests of investors first and having regulators willing and able to take action when there are allegation that this important principle may have been breached.

"In my experience being subject to defamation claims can leave you feeling intimidated and unable to write about a controversial subject.

"Hopefully our regulators haven't felt the same level of intimation and restriction when they have been attacked though blogs, social media or other communication forums."

The bigger issue here is that as funds management gets more competitive, particularly with KiwiSaver and league tables, the pressure to outperform will encourage bad behaviour.

Let's hope that is not the case.

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