A sharp rise in Xero’s share price in early 2015, just before a large capital raising was announced, was not insider trading, the Financial Markets Authority has concluded.
On February 19, 2015, the NZX issued a “please explain” notice to Xero, noting its stock had risen 16% to $19 in just two days.
Xero responded that it had nothing to disclose but a few days later on February 25 it announced a $147 million capital raise from two investors – Silicon Valley venture capital firm Accel Partners and existing institutional investor Matrix Capital.
After the capital raise was announced, Forsyth Barr’s head of institutional broking David Price said the situation “smells like three-week-old fish.”
“They got the 'please explain' a couple of days ago and said they didn't know why the price was up, and then they go and do this deal. It reeks to high heaven,” he said.
After a referral from the NZX, which identified three overseas institutional investors as involved in the pre-announcement share trading, the FMA launched an investigation.
In a statement issued today, the FMA said its investigation had concluded that no insider trading took place.
“Early inquiries about two of the three investors concluded the trading did not appear to be insider trading,” it said.
“An investigation was launched into the third party’s trading and similarly found no evidence of insider trading. Among other evidence, we reviewed research and due diligence carried out by this investor, on Xero, over a period of months before the existence of non-public material information.
The FMA is satisfied the extent and timing of the party’s investment in Xero matched its investment strategy and did not indicate reliance on insider information.
“All of the trading under investigation involved contracts for difference (CFDs), which are derivative products.
“New Zealand’s insider trading laws apply to overseas traders trading in this country’s markets. This includes trading derivatives of NZ-listed securities. The FMA can investigate activity irrespective of the location of the trading parties and can obtain assistance from overseas regulators. In this case, three overseas financial regulators assisted the FMA in obtaining information about the trading parties, including tracing the source of the buying through intermediaries.
“Xero, its staff and directors were not implicated in the investigation.
“Market integrity is a key priority for the FMA. Insider trading erodes investor confidence in financial markets at a fundamental level. The FMA will undertake investigations where it considers there is evidence that insider trading may have occurred.
“The FMA has charged three individuals with insider trading in 2017, relating to trading in Eroad and VMob (now Plexure). Two individuals remain before the courts.”
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