Under the Financial Markets Conduct Act, someone convicted of market manipulation can be jailed or fined up to $500,000.
Read more:
• Inside Money: Milford probe needs to lift above stall speed
• Milford Asset Management suspended from Super Fund
The FMA said the trading conduct was likely to have created the false or misleading appearance of the extent of trading or the supply, demand, price or value of relevant stocks.
FMA chief executive Rob Everett said the regulator would not comment on the trading activity in question, including the securities involved. "We have to respect the individual's rights to a fair process," Everett said.
He said it was "the most sizeable settlement of this nature" that the FMA had secured since its establishment in 2011.
"I believe this is a wake-up call for Milford and the industry," Everett said. "Boards need to ensure themselves that management have adequate reporting processes and checks in place to ensure they have visibility into what happens within their organisations."
In addition to managing director Anthony Quirk and Brian Gaynor, a Business Herald columnist, Milford's board members are Andrew Cross, Lester Gray, Bryce Marsden and Richard Somerville.
Quirk said Milford had lost only a "handful" of wholesale and retail clients as a result of the FMA investigation.
"We're putting our hand up and acknowledging we could have done better in this area," he said.
Quirk said it was important to note that, as stated by the FMA, the inquiry had not related to the security of client funds or assets.
One industry source, who chose not to be named, said the settlement was a poor outcome for the market. "In New Zealand we need to see some precedents and some case law and a settlement doesn't give us that."
Other market participants, who were potentially affected by the trading activity, were likely to seek compensation, he added.
Everett said taking the matter to trial would have been a drawn-out process and a quicker conclusion was the best outcome for the market. "We just felt that going to court would postpone what we wanted to achieve."
Shareholders Association chief executive John Hawkins said the settlement sent a strong signal to the market.
It was also an endorsement of exchange operator NZX's market surveillance systems, which identified the alleged manipulation, Hawkins said. "The reality now is you've got a pretty good chance of getting caught if you're playing fast and loose ... and not following the rules."
NZX boss Tim Bennett said fair and transparent pricing was fundamental to the operation of public markets.
"This matter has highlighted the importance of effective monitoring of trading conduct by - and standards that are expected of - brokers and fund managers participating in the markets."
Richard Stubbs, of Auckland fund manager Castle Point, said Milford's situation appeared to be an isolated case.
"I do not believe that this kind of alleged trader behaviour is endemic in the industry."
Milford super future unsure
Question marks remain over whether Milford Asset Management will reclaim its $281 million active equities mandate with the New Zealand Superannuation Fund.
The roughly $30 billion fund suspended the mandate in April. It said then the suspension would remain in place until the Financial Markets Authority investigation into alleged market manipulation at Milford was completed.
Milford reached a $1.5 million settlement with the regulator yesterday, although the portfolio manager who allegedly conducted the manipulated trades is still facing enforcement action.
A Super Fund spokeswoman said the mandate would stay suspended.
"We are taking time to consider the report in detail before deciding upon our response," she said. "We have the capacity to manage the funds in-house on an ongoing basis."
Milford took over the Super Fund mandate in 2009.
Read the full FMA - Milford Asset settlement here:
