ASIC Market Supervision Update Issue 53

November 2014

Australian market participants terminate client for suspected market manipulation

An overseas securities firm providing intermediary services to proprietary traders had its market access terminated by two market participants within a three month period.

ASIC's preliminary analysis of order submission and trading patterns in question revealed:

  • large numbers of orders from a single entity resting on the order book of relevant securities, many at the same price step
  • disproportionately large number of orders being entered, amended, cancelled and re-entered by that entity
  • a positive correlation between the change in the entity's contribution to order book imbalance and the mid-point price of relevant securities, and
  • clustering of order submission patterns, which may be indicative of co-ordination between ultimate order placers behind the entity.

Overseas regulatory responses to suspected market manipulation

In February 2014, Japan's Securities and Exchange Surveillance Commission recommended a fine of ¥60,000 yen for alleged market manipulation through layering by Select Vantage Inc.

In 2011, the Financial Services Authority in the UK issued a fine of £8 million to Swift Trade Inc., (Swift) for similar instances of market manipulation through layering. A former trader at Swift is the founder and owner of Merlito Securities Company Limited (the intermediary securities firm for Select Vantage Inc) and President of True North Vantage (a subsidiary of Select Vantage Inc).

Market participants are reminded of their obligations to comply with Part 5.7 of the ASIC Market Integrity Rules (ASX Market) 2010 on Manipulative Trading and Part 5.11 of the ASIC Market Integrity Rules (ASX Market) 2010 on Suspicious Activity Reporting.

Market Entity Compliance System – information sessions

In December, ASIC is hosting information sessions for market participants and market operators to demonstrate features of the Market Entity Compliance System (MECS).

MECS forms part of the Flexible Advanced Surveillance Technologies (FAST) project, a multi-year program of work, aimed at improving the way ASIC monitors and supervises our financial markets. To date, the FAST project has been responsible for delivering ASIC's new Market Analysis and Intelligence (MAI) surveillance system.

MECS will be the next component of the FAST project to be implemented, in mid-2015. MECS is an online portal that will enhance the way participants and operators interact with ASIC regarding their obligations under the ASIC market integrity rules. Specific features of MECS will include a calendar of regulatory obligations and implementation dates, reminders of upcoming events, the ability to submit forms online and monitor their progress, lists of responsible executives and accredited derivatives advisers and a record of interactions with ASIC.

Information sessions about MECS will be held at ASIC offices on:

  • Thursday 4 December, and
  • Thursday 11 December.

Participants and operators have been contacted directly with details of how to register for this event. Please contact your relationship manager if this has not occurred and you wish to attend one of these sessions.

Clarification - AOP Annual Notification

In the October 2014 edition of the Market Supervision Update, we reminded market participants that they had 10 business days from 1 November 2014 to lodge their first Automated Order Processing (AOP) Annual Notification with ASIC, in order to comply with Rule 5.6.8B of the ASIC Market Integrity Rules (ASX Market) 2010 (ASX) and ASIC Market Integrity Rules (Chi-X Australia Market) 2011 (Chi-X).

Rule 5.6.8A (ASX and Chi-X) requires a participant to perform an annual review of the AOP system, the participant’s policies, procedures, system design documentation (including the participant’s procedures for implementation of changes to AOP software, filters and filter parameters), and other relevant documentation concerning the participant’s compliance with Part 5.6. The AOP Annual Review is only required if an AOP Material Change Review has not been undertaken on the AOP in the 12 months before the AOP Annual Review Date.

Please note that, irrespective of whether a participant has performed an AOP Material Change Review or an AOP Annual Review, Rule 5.6.8B requires the AOP Annual Notification to be made.

ASIC Annual Forum 2015 – registrations open

Registrations are now open for the ASIC Annual Forum 2015, to be held on the 23-24 March at the Hilton Sydney.

The 2015 Forum will explore how regulation provides the framework for a resilient and dynamic financial system that fosters growth in the real economy and benefits all Australians. Over the two days, the Forum will discuss the balance between growth and stability, challenge the assumption that regulation inhibits innovation and ask how we can boost consumer trust and confidence, and therefore participation, in our financial system.

The 2015 ASIC Annual Dinner on Monday 23 March will include a keynote address and a panel discussion on the topic of 'Can the financial industry regulate itself?'

Once again, we will have an ASIC Forum app available for smart phones and tablets.

The Forum Program will be regularly updated as presenters are confirmed.

ASIC consults on proposals to enhance disclosure

ASIC is seeking feedback on proposals to make it easier for businesses to deliver financial services disclosures electronically while preserving choice for consumers. Our proposals also encourage the use of more innovative formats for Product Disclosure Statements. ASIC has released Consultation Paper 224 Facilitating electronic financial services and disclosures (CP 224) aimed at enhancing investor engagement with disclosure.

ASIC Commissioner John Price said, ‘ASIC is focused on making disclosure more effective and meaningful for consumers of financial services. We want to encourage more innovative ways of delivering important information presented in a way that consumers can understand and act on.’

‘At the same time, we believe electronic disclosure could reduce costs for providers and enable them to better align their disclosure with consumer preferences,’ he said.

Submissions to CP 224 close on 16 January 2015.

Enforcement outcome

Former CEO and two individuals jailed following theft of millions from Phosphagenics Ltd

Former Chief Executive Officer of Phosphagenics Ltd, Dr Esra Ogru, and two other individuals involved in the theft of millions of dollars from the listed company have been sentenced following charges brought by ASIC.

Following an ASIC investigation, Dr Ogru pleaded guilty to seven charges of obtaining a financial advantage by deception from biotechnology company, Phosphagenics Ltd, and its subsidiary, Vital Health Sciences Pty Ltd (VHS). The personal monetary benefit obtained by Dr Ogru from the false invoices and credit card reimbursements was nearly $3.9 million. Dr Ogru was sentenced to six years imprisonment for her role in the theft of more than $6.1 million.

Dr Robert Gianello, a former Phosphagenics employee, was sentenced to four years imprisonment for his role in the theft of more than $4.6 million from the company. Dr Gianello pleaded guilty to three charges of obtaining money by deception from Phosphagenics and VHS (refer: 14-125MR).

Dr Jiang pleaded guilty to three charges of obtaining money by deception. Dr Jiang was the director of two companies which submitted false invoices to Phosphagenics and VHS for goods and services that were never provided. Dr Jiang was sentenced to two years and six months imprisonment for his role in the theft of more than $4.3 million from the company.

Markets Disciplinary Panel (MDP)

Commonwealth Securities Limited (CommSec)

CommSec has paid a penalty of $15,000 to comply with an infringement notice given to it by the MDP. The penalty was for failing to prepare and provide accurate Crossing System Monthly Reports (CSMRs) to ASIC. This is the first MDP outcome relating to crossing system obligations under the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011.

CommSec is alleged to have contravened subsection 798H(1) of the Corporations Act by reason of contravening Rule 4.3.2 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011.

In determining this matter and the appropriate pecuniary penalty to be applied, the MDP noted (among other factors) that:

  • Rule 4.3.2 is primarily aimed at assisting ASIC in ensuring the integrity of markets. Imposing a strict obligation on participants that operate crossing systems to prepare and provide accurate CSMRs to ASIC, is critical to ASIC's role in maintaining and facilitating fair and efficient markets and to continue to effectively carry out its responsibility for market supervision in the context of a changing market environment
  • although the misconduct did not appear to directly impact the integrity of markets, it did however inhibit ASIC's function of supervising and ensuring the integrity of markets
  • the misconduct was careless on the part of CommSec. Despite CommSec's reliance on a third party data vendor to provide Crossing System Reporting Information (CSRI), CommSec neglected to ensure that the relevant CSMRs it prepared and provided to ASIC contained all the required CSRI, and
  • The misconduct transpired over an unacceptable period of time of 16 months.

 

ABN AMRO Clearing Sydney Pty Ltd (ABN AMRO)

ABN AMRO has paid a penalty of $40,000 to comply with an infringement notice given to it by the MDP. The penalty was for failing to demonstrate prudent risk management procedures by not setting and documenting appropriate maximum price change limits, as required. ABN AMRO is alleged to have contravened subsection 798H(1) of the Corporations Act by reason of contravening Rule 2.2.1(1)(b) of the ASIC Market Integrity Rules (ASX 24 Market) 2010.

In determining this matter and the appropriate pecuniary penalty to be applied, the MDP noted (among other factors) that:

  • Rule 2.2.1(1)(b) is aimed at ensuring that all market participants must at all times have and maintain appropriate controls to ensure that orders submitted by them into a trading platform do not interfere with the integrity of the market
  • market participants are specifically required to set and document appropriate pre-determined order and/or position limits on each client account. They are also required to set and document appropriate maximum price change (MPC) limits on each client account, and
  • setting MPC limits at a maximum or default setting of 999.9 basis points is inadequate and does not demonstrate prudent risk management procedures for a market participant with Direct Market Access (DMA) clients.

The MDP reiterated that market participants ought to take proper care and exercise diligence in the setting and documentation of appropriate limits for every DMA client. This is a critical measure in maintaining the integrity of a market.

Important regulatory information

Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, the above-named parties have complied with the respective infringement notice. Such compliance is not an admission of guilt or liability, and the party is not taken to have contravened subsection 798H(1) of the Corporations Act.

The MDP is a peer review body that exercises ASIC’s power to issue infringement notices and accept enforceable undertakings in relation to alleged breaches of the market integrity rules. MDP disciplinary circulars and infringement notices for these and other matters can be accessed on the MDP infringement notices register.

Last updated: 30/03/2021 09:35