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Friday 23 June 2017

17-198MR Macquarie Securities pays $505,000 in infringement notice penalty

Statement pursuant to regulation 7.2A.15(4) of the Corporations Regulations 2001 

Macquarie Securities (Australia) Limited (“Macquarie”) has paid a penalty of $505,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (“MDP”).

The MDP had reasonable grounds to believe that Macquarie had contravened subsection 798H(1) of the Corporations Act 2001 (Cth) by failing to comply with the ASIC Market Integrity Rules (Chi-X Australia Market) 2011 (Market Integrity Rules), namely:

  1. Rule 5.7.1(b)(iii), which prohibits a market participant from entering orders on the market on account of another person where a market participant ought reasonably suspect that the person placed the orders with the intention of manipulating the market;
  2. Rule 5.6.1, which requires a market participant to have appropriate automated filters in relation to the use of automated order processing (AOP) so as to ensure that such use does not interfere with the efficiency and integrity of the market; and
  3. Rule 5.5.2, which requires a market participant to have and maintain the necessary organisational and technical resources to ensure that its conduct does not interfere with the efficiency and integrity of the market.

In 2014, Macquarie on-boarded a client with a business model that represented a departure from Macquarie's traditional client base. Macquarie customised the parameters of the concurrent bid / offer filter that applied to its AOP system.

Macquarie’s trade surveillance monitoring software raised alerts into a substantial number of orders entered and Macquarie’s trade surveillance monitoring area sent an internal memorandum to Macquarie’s management which highlighted the alerts.

Macquarie’s management believed that additional analysis was required before they could consider suspending or terminating the client’s account. Internal communications continued for some time. Macquarie’s management had considered lodging a Suspicious Activity Report (“SAR”) but this was never finalised.

The MDP reasonably believed that Macquarie contravened the Market Integrity Rules in that:

  1. Macquarie was aware of the trading and rather than adopt measures to minimise the risk of, and opportunity for breaches of the market integrity rules, Macquarie’s decision to customise the parameters of the concurrent bid / offer filter, although not of itself objectionable, had created a more fertile environment for a possible breach;
  2. Macquarie’s conduct was reckless, given that Macquarie permitted ongoing trading through Macquarie’s AOP system for 39 days after a reasonable market participant in the same position as Macquarie ought reasonably have taken prompt steps to temporarily suspend the client’s account; and
  3. the key organisational failure was the inexplicable delay of Macquarie’s management in completing the SAR and further failing to temporarily suspend the account until it was satisfied that it was meeting its obligations under the market integrity rules.  

The compliance with the infringement notice is not an admission of guilt or liability, and Macquarie is not taken to have contravened subsection 798H(1) of the Corporations Act.

ASIC has not published the infringement notice at the current time for legal reasons.

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Last updated: 23/06/2017 05:41