Market Supervision Update Issue 54

December 2014

Clarification

ASIC's Market Supervision Update Issue 53 (November 2014) referred to previous regulatory action taken by Japan's Securities and Exchange Surveillance Commission in relation to Select Vantage Inc (Select Vantage) and the UK's Financial Services Authority in relation to Swift Trade Inc (Swift).

ASIC wishes to clarify that ASIC has not taken any action against Select Vantage, or any of its officers or employees, under the Market Integrity Rules. Further, ASIC notes Select Vantage's assertions that it has not been terminated by any Australian market participant for wrongdoing, that it is not affiliated with Swift, and that it has implemented rigorous internal controls in order to prevent market manipulation or other market abuses.

End of year 'window dressing'

ASIC reminds market participants to be alert to unusual trading associated with the year end, which can impact share price valuations and end of year performance figures. Often known as 'window dressing', it refers to orders placed at or near the close of trading, or on days leading up to the end of a reporting period, seeking to increase prices of a particular share.

Window dressing is a form of market manipulation and is generally conducted by parties who have an incentive to manipulate prices in or around reporting periods and benefit from this practice. These include investment managers, fund managers, MDA service providers and other portfolio managers, who report to clients in relation to investment performance on a periodic basis. As such, market participants should be alert to orders placed near the close on trading days leading up to reporting periods, that may impact the end of day price of securities.

ASIC's Market Surveillance team monitors trading of securities which increase in price near the end of reporting periods, which may be indicative of market manipulation. Previous surveillance activity has resulted in referrals to ASIC's Enforcement division for formal investigation. Participants should be aware of their obligations as gatekeepers, and should take active steps to identify possible misconduct, both by way of system controls and filters, as well as reviews of anomalous trading by designated trading representatives and compliance staff.

ASIC also reminds market participants of their obligation to report suspicious activity to ASIC under Rule 5.11 of the ASIC Market Integrity Rules (ASX Market) 2010 and the ASIC Market Integrity Rules (Chi-X Australia Market) 2011. Should ASIC uncover evidence of window dressing, our Enforcement team will investigate further, which may result in the imposition of ASIC market integrity rule or Corporations Act penalties.

For further information, market participants should refer to previous public statements made by ASIC and the ASX.

Markets outcomes

Former Genetic Technologies CEO jailed for market manipulation

Former Chief Executive of Genetic Technologies Ltd, Dr Mervyn Jacobson, has been sentenced to a total term of two years and eight months imprisonment after being convicted of manipulating the share price of GTG on the Australia Securities Exchange (ASX:GTG). Dr Jacobson will serve 12 months in jail before being released on a recognizance release order to be of good behaviour for a period of 20 months.

Earlier this month Dr Jacobson was convicted of 35 charges relating to his involvement in the manipulation of GTG shares over a six month period. Two of these charges involved Dr Jacobson conspiring with others to manipulate the GTG share price.

Dr Jacobson’s conviction and sentencing follows an eight-week jury trial in the Supreme Court of Victoria. During the trial, evidence was heard of Dr Jacobson’s actions to manipulate the GTG share price on the ASX to help him minimise and manage margin calls on loans totaling approximately $12 million.

In sentencing Dr Jacobson, Justice Stephen Kaye said the offences for which he had been convicted are serious, 'The express objective of section 1041A of the Corporations Act 2001 is to promote a fair, orderly and transparent market for registered securities. As part of that objective, section 1041A is directed to ensuring that the market price for registered securities truly reflects the genuine interaction of the forces of supply and demand for those securities on a free market. The conduct, in which you indulged, and to which you were a party was calculated to undermine that objective. In that way, your conduct had the capacity to erode the integrity of, and public confidence in, the securities market, and thereby to cause damage to members of the community, who have invested their savings in that market.'

ASIC Commissioner Cathie Armour said, ‘This outcome reflects ASIC’s determination to take action against market misconduct and to protect the integrity of our financial markets. This was a difficult case to investigate and prosecute and the result reflects ASIC’s markets enforcement capabilities.'

All of Dr Jacobson’s co-conspirators have previously been convicted and received sentences of imprisonment for their role in the conduct, following ASIC’s investigations.

[This newsletter was amended on 6 March 2020 in accordance with ASIC policy - see INFO 152 Public comment on ASIC's regulatory activities.]

In February 2011, Tamara Newing was sentenced to a term of 21 months imprisonment, fully suspended, following pleas of guilty to 10 counts of market manipulation of GTG shares. She was released immediately on a recognizance order.

[This newsletter was amended on 6 March 2020 in accordance with ASIC policy - see INFO 152 Public comment on ASIC's regulatory activities.]

In February 2008, the ASX Disciplinary Tribunal fined Bell Potter Securities Limited (Bell Potter) $120,000 plus GST for contravening ASX MR 13.4.1(b)(ii) by making Bids for, or dealing in the ordinary shares of GTG on account of its client where Bell Potter was aware that the person giving instructions for or on behalf of the client intended to create a false or misleading appearance with respect to the market for, or the price of, GTG.

ASIC investigation leads to refunding of $1.5 million to Australian customers

Interactive Brokers LLC (IB), a US-based online brokerage firm, will be refunding approximately $1.5 million in fees and commission payments to its retail margin lending customers, following an ASIC investigation that found that during the period July 2010 to August 2013, IB did not hold an Australian financial services licence (AFS) licence authorising the provision of margin loans The refunds are to be made as part of an enforceable undertaking (EU) accepted by ASIC.

ASIC also held concerns that IB did not comply with its responsible lending obligations when issuing margin loans by not verifying customers’ financial information. Approximately 3000 retail customers took out a margin loan with IB during this period.

Two Sydney men plead guilty to insider trading

[This article was removed on 2 January 2020 in accordance with ASIC policy - see INFO 152 Public comment on ASIC's regulatory activities.]

ASIC surveillance prompts FX provider to enhance compliance procedures

Following an ASIC surveillance, Calibre Investments Pty Ltd will implement changes to the way it offers FX services to retail clients. The move is part of ASIC’s crackdown on the FX industry which has resulted in a number of outcomes recently.

ASIC’s surveillance of Calibre, a securities dealer that provides managed discretionary account (MDA) services, raised concerns over its compliance and risk frameworks, advice to clients and supervision of representatives.

In response to ASIC's concerns, Calibre has appointed an independent consultant to review its MDA policies and procedures. The independent consultant will report back to ASIC. The group will also provide new statements of advice to all MDA clients and enhance its compliance department.

ASIC Commissioner Cathie Armour said, ‘FX trading is complex and risky, requiring a significant amount of knowledge, research and monitoring. ASIC expects business in this space to have policies, systems and processes in place that protect the interests of their clients.’

ASIC acknowledges Calibre’s cooperation in this matter.

Read ASIC media release 14-327MR

Last updated: 30/03/2021 09:24