FMA Publishes Market Cleanliness Research Report Into New Zealand Equity Market

The number of potential incidents of market abuse on the New Zealand equity market has been trending down over the past 20 years, research by the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko – has found.

Market Cleanliness in the New Zealand Equity Market research, published today, examined trading behaviour at a macro level in the lead up to market announcements between 2004-2024.

Market Cleanliness is the concept that price sensitive announcements should drive stock price movements only after the announcement is released. Significant movement in stock price before an announcement could suggest some form of information leakage or market manipulation.

Two main indicators were developed in this research. The Market Cleanliness Statistic (MCS) looked at the abnormality in stock price prior to the material announcements, given the previous relative performance compared to the market. The Abnormal Trading Volume Ratio (ATVR) assesses whether there are significant differences in the trading volume prior to the announcement.

It found that while both measures were highly volatile year-on-year, there has been a downward trend of pre-announcement abnormality in stock return and trading volume in the past 20 years.

FMA Chief Economist, Stuart Johnson, said: “Both New Zealand businesses looking to raise capital and Kiwi investors need to be confident that the stock market is safe and free of any large-scale manipulation. Market cleanliness goes to the heart of the Financial Markets Conduct Act’s purpose – to promote fair, efficient and transparent markets.

“Insider trading, among other forms of market abuse, threatens the integrity and reputation of the markets as it leads to unfair advantages for some investors over others. Oversight of capital markets, including deterring market abuse, are a focus of the FMA, which requires a combination of strong regulation, strict enforcement of the rules, and high-quality data and statistics.”

The FMA intends to undertake a review of market cleanliness using the measures outlined in this report and update them on a biannual basis.

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